By James Zhang
(Singapore, 20 March, 2020) The Monetary Authority of Singapore (MAS) announced today the establishment of a US$60 billion swap facility with the US Federal Reserve.
A swap facility, also known as a swap line, is for a temporary reciprocal currency arrangement between central banks, meaning that they agree to keep a supply of their country’s currency available to trade to another central bank at a same exchange rate.
Financial markets globally have come under strain in reaction to the now-widespread COVID-19 outbreak.
On 15 March 2020, six central banks including the Federal Reserve had announced the enhancement of the standing USD liquidity swap line arrangements to ease strains in global USD funding markets.
“These facilities, like those already established between the Federal Reserve and other central banks, are designed to help lessen strains in global US dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad,” the Fed said in a statement.
In a bid to ensure stable liquidity conditions in the USD funding markets in Singapore and globally, the Fed has now extended the USD liquidity swap line arrangements to nine additional central banks including the MAS.
Besides Singapore, the US central bank’s new swap lines — lasting at least six months — would provide another $60bn each in dollar liquidity for the central banks of Australia, Brazil, South Korea, Mexico, and Sweden, as well as $30bn each for the central banks of Denmark, Norway and New Zealand.
The swap lines are designed to improve liquidity conditions in US and foreign financial markets by providing foreign central banks with the capacity to deliver US dollar funding to institutions in their jurisdictions during times of market stress.
MAS intends to draw on this swap facility, which will be in place for at least six months, to provide USD liquidity to financial institutions in Singapore. MAS will work out the operationalisation of the facility in consultation with the Federal Reserve, and will provide details next week on how it will be implemented in Singapore.
The swap facility complements the MAS’s management of the SGD market. Through its market operations, MAS says it will continue to provide ample SGD liquidity to support the needs of the banking system. In addition, its Standing Facility is available for all eligible banks to deposit or borrow SGD funds against specified collateral.
MAS says these measures will reinforce the stability of the financial system in Singapore and support its role in providing credit and essential financial services to the economy.