- The Federal Reserve announced Tuesday the opening of a new repurchase agreement, or repo, facility aimed at supplying foreign central banks with US dollars.
- The pool will allow monetary authorities abroad to swap US government bonds for dollars. Global demand for the US currency has soared as the coronavirus drives investors to stable assets and forces firms to shore up cash.
- The Fed’s facility “should help support the smooth functioning of the US Treasury market,” the bank said in a statement.
- The facility will open on April 6 and operate for at least six months, the Fed added.
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The Federal Reserve aims to further ease market stresses with a new repurchase agreement, or repo, facility aimed at serving foreign demand for the US dollar.
The Fed announced Tuesday it would open the pool for central banks abroad to swap US government bonds for dollars. Foreign monetary authorities with existing accounts at the Fed’s New York branch will be able to use the facility starting April 6. The repo pool will be available for at least six months, the Fed added.
“This facility should help support the smooth functioning of the US Treasury market by providing an alternative temporary source of US dollars other than sales of securities on the open market,” the Fed said in a statement.
The coronavirus pandemic has fueled massive demand for greenbacks as investors exit markets and seek stable assets. Treasury bonds served as a popular safe haven as the outbreak first spread around the world, but record-low yields have since diminished their value.
The central bank already established dollar swap lines with several authorities as governments and businesses rush to shore up cash. Trillions of dollars in liquidity injections have further eased stresses in the critical currency market.
Tuesday’s new repo facility is far from the first the Fed has established to deal with the coronavirus’ economic fallout. Credit pools for struggling corporations and lenders have been established in recent weeks to keep firms afloat. A small business lending facility is set to be announced in the near future, the Fed said in a March 23 statement.
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