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News > Economy
Fed seeks limited trading
September 12, 2001: 7:07 a.m. ET

Requests overseas central banks limit dollar trading; money available after attacks
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NEW YORK (CNNfn) - The Federal Reserve requested Wednesday that central banks overseas limit the trading of dollars. The move comes as Chairman Alan Greenspan returns to the United States to help the central bank cope with money supply issues in the wake of terrorist attacks on major targets in New York and Washington, D.C.

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Fed Chairman Alan Greenspan
Greenspan had been out of the country attending a previously scheduled meeting of the Bank for International Settlements, but CNN has confirmed his planned return.

The Federal Reserve is making money available to banks following the Tuesday attacks. A statement on the Federal Reserve Web site said: "The Federal Reserve System is open and operating. The discount window is available to meet liquidity needs."

On Wednesday, the Fed added an unusually large $38.25 billion in temporary reserves to the U.S. banking system and said it would add more reserves as necessary, according to a Reuters report.

The Bank of England acknowledged Wednesday that the Fed has asked all central banks to minimize trading in dollars. A spokeswoman said this is normal procedure in emergency situations to prevent shocks to the currency trading system.

The Fed is worried that a large dollar transaction might be put into the system that one or several banks couldn't complete because of problems resulting from the World Trade Center disaster. Dozens of banks and traders had operations in the trade center's two towers.

Because transactions are often back-to-back with other institutions, a major trade overseas could cause liquidity problems further down the line as the ripple effects are felt. It is safer to ask banks not to trade rather than sort out the problems of liquidity later, according to investment sources in London.

Sources say currency trading is very quiet in London and that people "are just shell shocked" and that they think that it is inappropriate to be trading at this time.

Federal Reserve Vice Chairman Roger Ferguson, the No. 2 official at the Fed, was monitoring banking and financial market developments along with a team of top Fed officials.

Federal buildings in Washington -- including the White House -- were evacuated in the wake of attacks in Washington that destroyed part of the Pentagon and caused damage at the State Department.

In a separate attack, two apparently hijacked airliners were crashed into the towers of the World Trade Center in New York City, destroying both, and causing death and injury likely numbered in the thousands.

Click here for more on the attacks

The promise to supply additional money to the banking system was similar to a pledge the Fed issued on the morning after the October 1987 stock market crash, when the market plunged more than 500 points in one day of trading.

That statement in 1987 was given a large amount of credit for helping to restore calm to badly shaken financial markets. graphic


- from staff and wire reports

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