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Top central banks take joint action to boost cash flow

The world’s top central banks announced a huge onslaught to boost the volume of dollars available to strangled money markets yesterday, as global financial turmoil ripped deeper into confidence.

The central banks, led by the US Federal Reserve with a cash facility of US$180 billion, made an extraordinary statement of joint action.

“Today, the Bank of Canada, the Bank of England, the European Central Bank [ECB], the Federal Reserve, the Bank of Japan and the Swiss National Bank [SNB] are announcing coordinated measures,” they said.

These were “designed to address the continued elevated pressures in US dollar short-term funding markets.”

These measures, “together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets,” they said.

“The central banks will continue to work together closely and will take appropriate steps to address the ongoing pressures,” the statement said.

In New York, the US Federal Reserve announced a US$180 billion cash line to fight the wildfire on global financial markets.

The Fed’s Open Market Committee authorized the expansion of its temporary reciprocal currency arrangements or swap lines to fight “continued elevated pressures in US dollar short-term funding markets.”

And in an indication of the long-running nature of the already 14-month-old crisis, the Fed said the “reciprocal arrangements” by the central banks would run up to Jan. 30 next year or for another four-and-a-half months.

The Fed approved increases in the existing swap lines with the ECB of up to US$110 billion and with the SNB of up to US$27 billion.

New swap facilities were also authorized with the Bank of Japan (up to US$60 billion), the Bank of England (up to US$40 billion) and the Bank of Canada (up to US$10 billion). The world’s central banks have pumped hundreds of billions of dollars into money markets to ensure the supply of funds does not dry up after the collapse of US investment bank Lehman Brothers.
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