FEDERAL RESERVE FOREIGN AND INTERNATIONAL REPURCHASE PROGRAM, TALKING POINTS:
The Fed’s latest coronavirus mitigation program is a powerful backstop for Dollar funding
It offers markets reassurance that the Fed accepts responsibility for credit beyond US shores
Coupled with existing Dollar swap lines that makes a big difference
Growth correlated assets such as stocks, commodity currencies and energy have been beaten down by the coronavirus’ spread, which it’s clearly beyond the power of any authority to quickly halt. However, the Federal Reserve’s latest remedy program will at least offer these markets hope that US Dollar funding problems won’t metastasize into broader credit collapse.
The latest in an alphabet soup of plans, the Foreign and International Monetary Authorities Repurchase Program (FIMA) announced this week will allow central banks to instantly but temporarily convert their holdings of US Treasury bills into Dollars which can then be lent into their economies.
This is hugely important because the impulse to fly into the US Dollar in times of trouble has seen among other things a massive outflow of funds from emerging markets where many businesses have Dollar-denominated debt to pay. The sight of offshore US Dollar funding starting to dry up had many investors around the world on watch for a ‘credit event.’
An article by dailyfx.com