Swap lines are agreements between central banks to exchange the currencies of their country. They hold a stock of cash to trade with the other central bank at the current exchange rate. Princeton economist Alan Blinder, a former vice chairman of the Federal Reserve, says he personally considers more swap lines to be a good idea, but “it would be politically very difficult for the Fed to sell the idea that they should set up swap lines with a whole range of poor countries.” Moreover, he says, they would be far below the resources these countries need. From September 24 to October 29, 2008, the Fed extended its dollar swap to Australia, Norway, Denmark, New Zealand, Brazil, Mexico, Korea, and Singapore. It also shows the steps the Fed had to take to support the position of the US dollar as a global currency. If the dollar ever collapsed, it would have done so at that time. The Federal Reserve operates these swap lines under the authority of Section 14 of the Federal Reserve Act and in accordance with the authorizations, policies and procedures established by the Federal Open Market Committee (FOMC). The foreign currency that the home bank acquires is an asset on its balance sheet. In Tables 1, 9 and 10 of the statistical publication H.4.1, the dollar value of amounts drawn by foreign central banks but not yet repaid is entered in the line “Liquidity swaps of central banks”. [13] Since the swap is settled at the same exchange rate as that used in the first draw, the dollar value of the asset is not affected by changes in the market exchange rate. Dollar funds deposited in accounts held by foreign central banks with the Federal Reserve Bank of New York are a liability of the Federal Reserve.
In principle, the prints would first appear in Tables 1, 9 and 10 in the line “foreign and official deposits”. However, foreign central banks usually lend the dollars shortly after the swap line is inside. On this date, the funds move to the “depository bank deposits” line. Since October 31, 2013, the Federal Reserve has also established usual dollar liquidity swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. . . .