Thread by @daniel_mcdowell

Thread:

As of two hours ago, the Federal Reserve opened swap lines with 9 additional central banks. Coupled with the 5 standing lines, this brings the total # of liquidity arrangements to 14, as many as during the GFC. The same CBs are involved.

federalreserve.gov/newsevents/pre…

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Notably, however, the size of these swap lines is larger.

Lines for the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Korea, the Banco de Mexico, the Monetary Authority of Singapore, and the Sveriges Riksbank max at $60 bn.

They were $30 bn in 2008-10.

Lines for the Danmarks Nationalbank, the Norges Bank, and the Reserve Bank of New Zealand are now $30 billion.

They were $15 bn in 2008-10.

The five standing lines have no limit. In terms of potential int'l liquidity provision, the Fed's current actions have no precedent.

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As it has time and time again in the past, the US has stepped in to act as the international lender of last resort in a time of global financial panic.

I first wrote about this in a paper for @NPEjournal published in 2012

tandfonline.com/doi/abs/10.108…

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My book, "Brother, Can You Spare a Billion? The United States, the IMF, and the International Lender of Last Resort" updates the story and expands the historical scope to consider US ILLR actions going back to the 1960s.

amazon.com/Brother-Can-Sp…

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In the book, I discuss how the ILLR concept developed over time and explain how the US is uniquely positioned to perform this function (and, in comparison, how international institutions like the IMF are often inadequate to the task).

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It considers the complementary roles that the Federal Reserve and the Treasury play in performing this "financial fire brigade" function for the world economy when things get ugly. It traces these actions over many decades through a variety of crises.

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Since the Fed's 2008-10 actions, central bank swap lines have become increasingly popular--for a variety of reasons--as I explain in my paper "Emergent International Liquidity Arrangements: Central Bank Cooperation After the Global Financial Crisis"

link.springer.com/article/10.105…

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@stevenliaotw and I have also written about China's interest in signing swap deals with foreign central banks.

academic.oup.com/isq/article-ab…

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More recently, I've written about how these RMB swap lines have evolved into potential "crisis liquidity" lines--though there are legitimate limitations to this (discussed in the paper).

onlinelibrary.wiley.com/doi/abs/10.111…

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Others have also done great work on the subject of swap lines. One must read paper is @aditi_saha1084 @RIPEJournal paper which zooms in on the Fed's decision to provide liquidity to four emerging market economies (the same 4 in the program today!)

tandfonline.com/doi/full/10.10…

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Speaking of @aditi_saha1084, she's working on an awesome dissertation on this subject right now. She's conducted an incredible number of interviews with central bankers and gov't officials. This project is going to make a huge contribution to this literature.

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So, in other words, departments looking to hire someone working in IPE of finance should get in line to speak to @aditi_saha1084 starting today because she's way ahead of the curve. So, pay attention when you see her file, ok?

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@whinecough has a really cool working paper on Fed swaps as well that, I imagine, will be coming to a journal near you sometime soon and should be on everyone's reading list.

drive.google.com/file/d/1SIH6vw…

Another paper worth reading--and one of the first on the subject--is this by Joshua Aizenman and Gurnain Kaur Pasricha. This one focuses in on the EM swap lines during the GFC.

sciencedirect.com/science/articl…

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Hyoung-kyu Chey has also written on this subject.

grips.ac.jp/r-center/wp-co…

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It's pretty surreal to be back here just over a decade from the 2008 panic. I still remember reading a @HuffPost article back then about what the Fed was doing. That set me down the research path I've spent much of my professional life on. And, here we are again.

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I can think of no better way to wrap up this thread than with the words of Charles Poor Kindleberger.

fin.