Six central banks, including the U.S. Federal Reserve and the Bank of Japan, announced on Friday coordinated action to further boost U.S. dollar liquidity amid concerns over the economic impact of the coronavirus pandemic.
The Fed said in a statement that it will increase the frequency of its currency swap line operations with the BOJ, Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank.
The arrangement enables central banks to exchange on a temporary basis their own currencies for the U.S. dollar to address stresses in dollar funding in overseas markets. The demand for the dollar is rising as financial institutions and banks seek to keep cash at hand amid the turmoil in global financial markets due to the virus outbreak.
The seven-day maturity operations, under which financial institutions return the dollar funds borrowed from central banks in a week, will take place on a daily rather than weekly basis starting next Monday. It will continue at least through the end of April, the Fed said.
Central banks around the world are rolling out measures to calm financial markets that have been gripped by fears over the potentially severe economic impacts of the COVID-19 pandemic.
On Sunday, the Fed said the six central banks have decided to enhance dollar liquidity by agreeing to lower the rate on the swap line loans and extending the period for such loans.
On Thursday, the U.S. central bank announced the establishment of temporary dollar-swap lines with nine other central banks, such as those in Australia, South Korea and Singapore.