Fed strikes $30B deal

The Federal Reserve to provide funds to central banks of Australia, Denmark, Norway and Sweden in order to increase dollar liquidity.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)

WASHINGTON (CNN) -- The Federal Reserve Bank announced a deal with four nations Wednesday meant to help increase dollar liquidity in global financial markets.

The Fed said it has established reciprocal-currency arrangements with the central banks of Australia, Denmark, Norway and Sweden.

The agreement allows the Fed to make up to $30 billion available to the central banks. The central banks of Australia and Sweden will be provided with $10 billion each while institutions in Denmark and Norway will get $5 billion each. In return, the Fed will receive the reciprocal amount of foreign currency from each country. Under these types of arrangements, the currency 'swaps' get unwound at a later date.

The U.S. central bank's move to increase liquidity by reaching out to other countries is part of a larger effort to restore some level of confidence to Wall Street, said one economist.

It shows that "the [U.S.] central bank has some depth to it, some ability to respond," said John Silvia, chief economist at Wachovia, adding, "there is a backstop there - the [Fed] is not out there by itself."

The Fed's announcement, made at 1 a.m. ET Wednesday, follows a similar initiative it unveiled last Thursday - ultimately a $247 billion reciprocal currency arrangement with the European Central Bank, Swiss National Bank, Bank of England, Bank of Canada and Bank of Japan.

The influx of money from the central banks represents an effort to put more money into financial markets and fuel economic activity.

Silvia said that the move does not necessarily mean that the Federal Reserve will use the line of credit immediately but rather that "they are getting ready for the future," said Silvia. "It is similar to what a business would do with a local bank," said Silvia. "[It] establishes that line of credit, which is absolutely essential."

In the current economic climate, with major financial and insurance institutions teetering, commercial banks have tightened their lending policies and increased interest rates, taking billions of dollars out of the economy.

"It is essential that the central banks do stand there and massage the trust back into action," David Buik of the BGC Partners brokerage firm in London said last week. "Without them, we would be in unbelievably uncontrollable turmoil."

Under the reciprocal-currency plan announced last Thursday, the European Central Bank will get up to $110 billion, the Swiss National Bank up to $27 billion, the Bank of Japan up to $60 billion, the Bank of England up to $40 billion and up to $10 billion from the Bank of Canada.

Both plans have been authorized by the Fed through Jan. 30, 2009.

With additional reporting by Catherine Clifford, CNNMoney.com staff writer To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
Some Converse copycats cost big bucks A few bargain brands got swept up in Chuck Taylor's net, but others cost a pretty penny. More
Urban infrastructure gets a second life Railroad beds become parks, power plants become aquariums and slaughterhouses are now art centers as an industrial past turns people-centric. More
Boomtown moms From working mothers raising their kids in RVs to stay-at-home moms who spend their days organizing events for the Oil Wives club, meet the moms of North Dakota's oil boom. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.