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Federal Reserve opens up seventh liquidity facility, to supply US dollars abroad

Brian Cheung

Stresses in the U.S. dollar markets have pushed the Federal Reserve to open up a facility where foreign central banks can temporarily swap U.S. government bonds with greenbacks, as the coronavirus continues to grip markets around the world.

The Fed announced Tuesday morning that it would be establishing a repurchase agreement facility for foreign and international monetary authorities (FIMA) that have accounts at the central bank’s New York branch. Through the FIMA repo facility, other central banks and monetary authorities unable to make smooth trades in the open market will be able to temporarily liquidate their positions in Treasuries.

“Stabilizing foreign dollar markets, in turn, will support foreign economic conditions and thereby benefit the U.S. economy through many channels, including confidence and trade,” the Fed said in a statement.

U.S. Federal Reserve Chairman Jerome Powell arrives to speak to reporters after the Federal Reserve cut interest rates in an emergency move designed to shield the world's largest economy from the impact of the coronavirus, during a news conference in Washington, U.S., March 3, 2020. REUTERS/Kevin Lamarque

The Fed had already opened up U.S. dollar swap lines with 14 other central banks as companies and governments around the world scramble for dollars. All the while, the Fed has tried to maintain liquidity in the market for U.S. Treasuries by resuming its crisis-era policy of directly buying government debt of various maturities.

The FIMA repo facility is the seventh liquidity facility that the Fed has opened up as it continues to battle the economic effects of the coronavirus.

Existing FIMA account holders already use the New York Fed for services like clearing, settlement, and gold safekeeping. Outstanding amounts under the facility will be viewable to the public through weekly releases.

The Fed says the repo facility will be open for six months beginning April 6.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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