Success of the Fed's Currency Swap Program

The Federal Reserve Bank of Cleveland's Credit Easing Policy Tools have all the graphs and download friendly data sets on the Fed's discretionary policy actions. This rather neat tool allows us to see the effects of the Fed's currency swap program on the LIBOR-OIS spread. To address international funding pressures the Federal Reserve introduced reciprocal currency arrangements with other Central Banks. One recent finding suggests that dollar funding pressures have tended to moderate following large increases in dollars lent under the new swap line program. Additionally, in a process called "informational easing" swap line announcements have been associated with improved conditions (i.e. lowering of the basis) in these markets. As the graph shows the most recent spike in the LIBOR on May 19th caused only a small withdrawal of funds. The successful use of these currency swaps to calm market fears and help meet global demand for dollars should be taken seriously as this is one tool that could prove invaluable for the Fed.