As a measure to tide over the global meltdown, Federal Reserve of the US has extended its currency swaps also with South Korea, Brazil, Singapore and Mexico. Under the swap agreement, each country’s central bank will receive about $30bn as a relaxation to the lending process, and also to remedy liquidity crises of those countries. According to the present agreement, the swap will be effective till April 30.
The Fed had made similar swaps earlier with countries including Australia, Denmark, England, Norway, Sweden, Switzerland, New Zealand, Canada, Japan and the European Central Bank. The arrangement is such that the Fed will exchange available allocated fund for each country for their respective currencies. The swap procedure is designed to make central banks to lend money more freely to allow businesses to run smoothly, and thereby to recover from the ongoing crises.
Venkatraman Anantha-Nageswaran, Research Head at Bank Julius Baer & Co. in Singapore stated the swap effort would be more effective than the domestic Fed rate cuts as it was expected to unclog the liquidity pipeline faster.
Notwithstanding, the Fed announcement was followed soon after IMF’s decision to increase almost by three times the borrowing limits for emerging economies; the immediate beneficiaries will be Brazil, Turkey and South Korea. The IMF’s short term loan would be available for eligible countries for an interest rate of about 4%, and the total fund allocated for this purpose is $100bn. The US Treasury Secretary Henry Paulson praised the IMF’s and Fed’s decision for demonstrating solidarity with the emerging economies which were equally entangled by the current economic crises.
Analysts observed sustained efforts by Fed as well as IMF to a great extend would help to fix the cash-crunch confronted by several emerging economies. The damage control was welcomed by most of the share markets linked with the report. But experts cautioned the situation has to be monitored very closely to act quickly before the mood swings backward as the markets are lacking confidence despite some timely repair work done earlier.