Federal Reserve announces new repo facility to provide dollars to foreign central banks

Today the Federal Reserve (Fed) announced the establishment of a temporary repurchase agreement facility (repo) for central banks and other international monetary authorities. The facility will allow participants to exchange their US treasury securities held with the Fed for US dollars, which can then be made available to institutions in their jurisdictions.

The facility aims to further alleviate stress in dollar funding markets, opening dollar access to central banks that do not have currency swap arrangements with the Fed. The facility will also reduce the need for central banks to sell their treasury holdings to raise dollars, ensuring smoother functioning of US treasury markets, which have also experienced dislocations in recent weeks.

Why it matters:

• The world runs on dollars and dollars are scarce amidst a massive coronavirus induced liquidity crunch and reduction in global trade.
• The Federal Reserve is acting as the world’s central bank flooding the world with liquidity to shore up global dollar funding markets.