International liquidity provision and currency-specific liquidity shortages
AbstractIn this paper we discuss the main innovation in central bank cooperation during the financial crisis of 2008-09, namely the emergency provision of international liquidity through the establishment of bilateral central bank swap facilities, which have evolved to form interconnected swap networks. Based on the BIS international locational banking statistics, we present a measure of currency-specific liquidity shortages for the US dollar, the euro, the yen, the pound sterling and the Swiss franc for a large number of advanced and emerging economies. We discuss the reasons for establishing swap facilities, relate our measure of currency-specific liquidity shortages to the probability of a country receiving a swap line in that currency, and find a significant relationship in the case of the US dollar, the euro, the yen and the Swiss franc. We find that countries with larger US dollar shortages on our measure, and economies that are large international financial centres, have a statistically significantly higher probability of receiving a US dollar swap line. We also find that actual US dollar funding obtained by drawing on the Fed’s swap lines at end-2008 was statistically significantly larger for economies with higher US dollar shortages on our measure, as well as for economies which are large international financial centres.
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Bibliographic InfoArticle provided by Capco Institute in its journal Journal of Financial Transformation.
Volume (Year): 34 (2012)
Issue (Month): ()
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International liquidity; central bank swap lines; FX swaps; lender of last resort;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G01 - Financial Economics - - General - - - Financial Crises
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- William A Allen & Richhild Moessner, 2012. "The liquidity consequences of the euro area sovereign debt crisis," BIS Working Papers 390, Bank for International Settlements.
- Moessner, Richhild & Allen, William A., 2013. "Central bank swap line effectiveness during the euro area sovereign debt crisis," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 167-178.
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