Central bank currency swap lines

Enrique Esteban García-Escudero () and Elisa J. Sánchez Pérez ()
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Enrique Esteban García-Escudero: Banco de España
Elisa J. Sánchez Pérez: Banco de España

No 2025, Occasional Papers from Banco de España

Abstract: As the US dollar plays a pivotal role in international trade and financial markets, non-US banks’ reliance on short-term wholesale funding markets (such as repo, commercial paper, certificate of deposit and swap markets) to finance their dollar assets makes them especially vulnerable to shocks in these markets, such as those arising from the global financial and COVID-19 crises. The crisis management mechanisms in place before the global financial crisis (the International Monetary Fund and international reserves) were overwhelmed by it. Only the rapid deployment of an international currency swap network, as a result of policy cooperation between the main global central banks, allowed equilibrium between dollar supply and demand to be restored and the severest consequences of the market strains for non-US banks to be avoided.

Keywords: central bank swap lines; IMF; International Monetary System; dollar funding; non-US banks; global financial crisis; COVID-19 crisis; cross-currency basis; international lender of last resort (search for similar items in EconPapers)
JEL-codes: E41 E51 E58 F34 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2020-09
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-mac and nep-mon
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https://www.bde.es/f/webbde/SES/Secciones/Publicac ... 20/Files/do2025e.pdf First version, September 2020 (application/pdf)
https://www.bde.es/f/webbde/SES/Secciones/Publicac ... s/20/Fich/do2025.pdf Spanish version (application/pdf)

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