FED Cooperates With A Series Of Central Banks To Enhance USD Liquidity

Key Points:

• The Fed, ECB, and other central banks work together to take coordinated steps to increase dollar liquidity.
• The move to avoid the risk of a cash rush.
• Bitcoin is also a cryptocurrency trending upwards as the banking crisis in the US is spreading to Europe.

The Fed has partnered with central banks to increase liquidity for the dollar. The big move is aimed at avoiding a global cash rush. Bitcoin and risk assets, in general, tend to move in the opposite direction of the greenback.

The Fed (USA) and a series of central banks from Canada, the UK, Japan, the EU, and Switzerland have just announced a coordination mechanism to improve bank liquidity.

To improve the efficiency of the US dollar fund supply in the swap line, central banks that currently offer US dollar operations have agreed to increase the frequency of maturity operations from weekly to daily. The mechanism will begin today, March 20, and will continue at least until the end of April.

This network of swap lines between central banks is a ready-made toolkit and a vital liquidity safeguard against stress in global funding markets, thereby helping to reduce the impact of that strain on the provision of credit to households and businesses.

It follows the implosion of three banks in the US and the takeover of troubled Swiss lender Suisse by UBS and National Bank.

Demand for USD increases as institutions and banks want to keep cash while the crisis risk spreads. This mechanism helps central banks to access foreign currency easily, then distribute it to domestic and commercial banks. Thereby ensuring liquidity and minimizing stress in the market.

The Fed’s support for global dollar liquidity reduces the risk of a worldwide cash rush in March 2020 as investors sell everything, including bitcoin and cryptocurrencies other, and convert to cash, mainly USD.

On Sunday, the top cryptocurrency by market value was seen mainly as a hedge against the banking system and hit a nine-month high above $28,000, bringing cumulative monthly gains to nearly 25%.

Covid 2020, the Fed provided a similar mechanism to solve the crisis. Many solutions have been proposed to stabilize the world financial situation; the Fed’s balance sheet size may even increase.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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