As Senator Everett Dirksen famously said, “A billion here, a billion there, and pretty soon you are talking real money.”
Today, the Fed provided Brazil, South Korea, Mexico, and Singapore with dollar swap lines of $30 billion each (hat tip readers Robertm, Dwight). From the Fed’s press release:
Today, the Federal Reserve, the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore are announcing the establishment of temporary reciprocal currency arrangements (swap lines). These facilities, like those already established with other central banks, are designed to help improve liquidity conditions in global financial markets and to mitigate the spread of difficulties in obtaining U.S. dollar funding in fundamentally sound and well managed economies.
Federal Reserve Actions
In response to the heightened stress associated with the global financial turmoil, which has broadened to emerging market economies, the Federal Reserve has authorized the establishment of temporary liquidity swap facilities with the central banks of these four large and systemically important economies. These new facilities will support the provision of U.S. dollar liquidity in amounts of up to $30 billion each by the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore.
These reciprocal currency arrangements have been authorized through April 30, 2009.
The FOMC previously authorized temporary reciprocal currency arrangements with ten other central banks: the Reserve Bank of Australia, the Bank of Canada, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Japan, the Reserve Bank of New Zealand, the Norges Bank, the Sveriges Riksbank, and the Swiss National Bank.
Separately, the Federal Reserve welcomes the announcement today by the International Monetary Fund of the establishment of the Short-Term Liquidity Facility, which is designed to help member countries that are facing temporary liquidity problems in the global capital markets. The Federal Reserve is supportive of the IMF’s role in helping countries address and resolve their ongoing economic and financial difficulties.
On the IMF Facility (from the IMF website):
The Executive Board of the International Monetary Fund (IMF) today approved the creation of the Short-Term Liquidity Facility (SLF) to establish quick-disbursing financing for countries with strong economic policies that are facing temporary liquidity problems in the global capital markets.
“I am very pleased to announce that the Executive Board has approved the establishment of a new facility for market access countries—the Short-Term Liquidity Facility,” stated Mr. Dominique Strauss-Kahn, Managing Director of the IMF. “The ongoing turmoil in global capital markets has led to significant liquidity difficulties for some emerging market countries, even those that have maintained sound macroeconomic frameworks and have sustained histories of market access. Existing Fund loan facilities offer flexibility. However, they are fundamentally used for countries that require both financing and policy adjustment, and not for countries that despite strong initial macroeconomic positions and policies are facing short-term liquidity pressures. This new facility addresses that gap in the Fund’s toolkit of financial support.”
Mr. Strauss-Kahn emphasized that the IMF is committed to promoting a coordinated and cooperative approach to dealing with the current crisis. “Exceptional times call for an exceptional response,” Mr. Strauss-Kahn said. “The Fund is responding quickly and flexibly to requests for financing. We are offering some countries substantial resources on an expedited basis, with conditions based only on measures absolutely necessary to get past the crisis and to restore a viable external position,” he said….
Outline of the IMF’s new Short-Term Liquidity Facility (SLF):
Purpose: Establishes a facility through which large, upfront, quick-disbursing short-term financing, using existing IMF resources, can be provided to countries with strong policies and a good track record but which are facing temporary liquidity problems arising from developments in external capital markets.
Terms: Disbursement of Fund resources can be up to 500 percent of quota, with a three-month maturity. Eligible countries are allowed to draw a maximum of three times during any 12-month period.
Eligibility: Countries with track records of sound policies, access to capital markets and sustainable debt burdens. Policies should have been assessed very positively by the IMF in its most recent Article IV discussions. Given this strong emphasis on past performance, financing is made available without the standard phasing, performance criteria, monitoring, and other conditionality of a Fund arrangement. However, borrowers are expected to continue their commitment to maintain a strong macroeconomic policy framework.
Note the lack of detail as to the size of this program.