ECB starts swap arrangement with US Federal Reserve

AFP - [email protected] • 6 Apr, 2009 Updated Mon 6 Apr 2009 17:36 CEST

The European Central Bank announced on Monday a "swap" arrangement with the US Federal Reserve that would help the Fed loan euros to US companies.


An exchange of dollars and euros, commonly known as a swap arrangement, has already allowed the ECB to provide eurozone banks with the dollars they need to fund business operations on this side of the Atlantic, but this was the first such deal to be oriented towards the United States.

An ECB statement out of Frankfurt said it would provide up to €80 billion ($108 billion) to the US central bank, in a move that left analysts puzzled.

The statement said that "should the need arise, euro, yen, sterling and Swiss francs would be provided to the Federal Reserve via these additional swap arrangements" that also included the Bank of Japan, the Bank of England and the Swiss National Bank.

The arrangement announced Monday would remain in effect until October 30, the ECB said.

Bank of America economist Gilles Moec told AFP that ensuring ample access to foreign currencies on major markets was always a good idea, but added: "The only question is: why now?"

"It would have made more sense a few months ago when the tension on markets was extreme, possibly triggering a demand for alternatives to the dollar on the US market," Moec added. "This is probably a precautionary move," he concluded.


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