Martin Lee @ Sg
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Joint Action by Central Banks to Boost USD Liquidity

In a coordinated move yesterday, The European Central Bank, U.S. Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland announced that they would make it easier for European banks to gain access to US$ liquidity.

The central banks agreed to reduce the cost of temporary dollar loans they offer to banks — called liquidity swaps — by half a percentage point starting from next Monday.


Recently, European banks have been having trouble borrowing dollars at affordable rates due to fears about their financial health.

By having these liquidity swap agreements in place (this article gives a good explanation of how it works), The European Central Bank (ECB) will be able to get ready access to US$ to lend to European banks.

Equity markets worldwide rallied on the news. While this move solves an immediate liquidity problem, I think that the underlying solvency issues still remains intact.

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2 comments
Jason says 12 years ago

Is U.S. really helping the European? Or is it the best way to further devalue the US Dollars against the European currencies?

U.S. MMC is like Japanese, they prefer to have weaker USD versus other currencies, so that when booking larger profits from overseas operation. This will cause their stock price to rise as investor see it’s profitability and looking forward for better dividends payout.

Weaker USD also encourage some firms to setup manufacturing plants in US to serve the local markets and create jobs, which is desperately needed for US economy to recover.

US receive the most benefit from this “joint” effort.

Very soon, US Dollars will become like the Japanese Banana Notes used during WWII.

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Nuts says 12 years ago

Rumour is that at least 1 big European bank was just about to implode like Lehman, due to the credit crunch. Saved in the nick of time by coordinated central bank action. Coz govts won’t allow another Lehman, not if they can help it. But the end game will be decided by markets, not by govts or central banks.

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