Emergency cash facilities go permanent
THE BANK of England yesterday came to a deal with a range of foreign central banks to secure emergency funding in a range of currencies.
The swap facilities mean that when international currency markets are squeezed, one central bank can use the facility to obtain liquidity from another.
America’s Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank have all agreed to make the deals with each other permanent.
They are part of a network of new rules and agreements which are designed to stop financial strains getting out of hand in the way they did in the crisis years.
If central banks see a liquidity strain in a sector or at specific banks which they believe is temporary then they step in with support. Banks have to pay for the aid, and it is given for limited periods of time.
Other recent arrangements include a renminbi swap line with the People’s Bank of China. That deal recognises the growing importance of trade with China and came as part of a package of agreements designed to boost that trade and make London an international centre for the currency.