Fed Opens Swaps with Central Banks of Four Developing Nations

October 31, 2008 · By Kalyani Mukherjee Filed Under Finance Tagged as: Federal Reserve

The Federal Reserve has decided to provide the central banks of Brazil, Mexico, South Korea and Singapore with $30 billion each in the first instance of aid to emerging economies. The finance package will form part of the Federal Reserve’s attempts to unclog the credit system and encourage banks to lend to each other.

In a statement issued on Wednesday, the Federal Reserve announced that it was setting up liquidity swap facilities with the central banks of these four countries which would remain effective until April 30 of next year. The Federal Reserve also said that arrangements were put in place in order to minimise the difficulty in obtaining dollar funding by the “large systemically economies” of Mexico, Brazil, Singapore and South Korea.

The Federal measure coincided with key interest rate cut ordered by the central bank of China which was then followed by the central banks of Taiwan and Hong Kong on Thursday. Investors and banking institutions are hoping that these measures will prevent the financial market from upending. South Korea especially benefited from the Federal step as its benchmark stock index witnessed its largest gain since 1980 even as its currency, the won, surged and the cost of protecting Asia-Pacific bonds from default took a nosedive.

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