Fed Signs Currency Swap Deals With 4 Central Banks

The U.S. Federal Reserve Board yesterday signed a currency swap deal with the central banks of four major economies.

The Fed agreed on a currency swap deal worth 285 billion U.S. dollars with the central banks of Britain, Japan and Switzerland as well as the European Central Bank. The deal will help Washington through October receive 80 billion euros (107.2 billion dollars) from the European Central Bank, 30 billion pounds (44.5 billion dollars) from the Bank of England, 40 billion Swiss francs (35.4 billion dollars) from Swiss National Bank, and 10 trillion yen (99.7 billion dollars) from the Bank of Japan.

The Fed said it took the measure to ease the credit crunch and stabilize the U.S. financial system. It has signed currency swap deals with 14 central banks worldwide.

“Central banks will continue to work together to foster stability in global financial markets,” the Fed said.

The swap deals have fueled worry, however, over a possible liquidity crisis. Certainly, it is exceptional that the United States, whose dollar is the world`s key currency, signed currency swaps through which it can borrow other currencies instead of lending its dollars.

Given the economic slowdown and the difficulty of large financial institutions in selling their non-performing assets, Washington might face difficulty drawing additional capital.

The New York Times and Bloomberg quoted an expert as saying the Fed`s currency swap deal is mainly a preemptive measure to prevent another financial crisis from reemerging. The deal can be understood as the Fed`s effort to stabilize the global financial market via close cooperation with major economies, he added.