The Federal Reserve has set up a program to exchange dollars for foreign currency with nine central banks to support dollar lending in global markets that are under pressure from the impact of the viral outbreak.
The move, announced Thursday, enables foreign banks to provide dollars to their banks that sometimes lend and trade in US currency.
It is the latest effort by the Fed to smooth the functioning of financial markets, as investors, banks, and companies rush to stockpile cash amid plunging stock markets and a sharply slowing economy. Late Wednesday, the Fed also reactivated its third lending facility dating from the financial crisis intended to provide more cash to banks in the form of short-term loans.
The currency swaps established Thursday are capped at $60 billion for six central banks in Australia, Brazil, Mexico, Singapore, Korea and Sweden. The exchange lines are capped at $30 billion for central banks in Denmark, Norway and New Zealand. Under the swaps, the Fed provides dollars for an equal amount of foreign currency, which it can also use in short-term lending to banks if needed.
The Fed already maintains such currency exchanges with five other central banks, including the European Central Bank, the Bank of Japan, and the Bank of Canada.