/ 18 September 2008

Central banks join forces to add dollar funds

Global central banks clubbed together on Thursday to add extra dollar funds to global money markets in a bid to bring down high market interest rates and tackle a fresh round of liquidity bottlenecks.

The European Central Bank (ECB), the United States Federal Reserve, the Bank of England (BoE), the Bank of Japan, the Swiss National Bank (SNB) and the Bank of Canada said they were working closely together to ease liquidity tensions.

The US Federal open market committee said it had authorised a $180-billion expansion of its temporary reciprocal currency arrangements (swap lines).

Under the agreement, the ECB, BoE and SNB will offer overnight dollar funding for the first time while the Japanese and Canadian central banks announced new swap lines with the Fed for dollar liquidity in their local markets.

”The coordinated measures [are] designed to address continued elevated pressures in short-term US dollar funding markets,” the ECB said in a statement, which was similar to those issued by the other central banks just after 7am GMT.

”These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets.

”The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.”

As part of the agreement, the ECB and BoE said they would offer up to $40-billion each in overnight dollar funds and the SNB said it would offer up to $10-billion.

The Bank of Japan said it had signed a $60-billion swap agreement with the Fed and the Bank of Canada said it agreed a $10-billion swap agreement to provide US dollars to the local market, although it did not plan to draw on it at this time.

The ECB and SNB have been offering dollar funding since last December but only over longer maturities. — Reuters