The Federal Reserve has taken a new step to meet the global demand for dollars, setting up a facility that would allow central banks and international monetary authorities to enter into repurchase agreements with the US central bank.

The Fed said the new facility would work in tandem with the dollar swap lines already established by the central bank with its peers across 14 different countries as the coronavirus pandemic has spread across the world. 

As investors have flocked to safe assets and companies have scrambled to offset the blow to revenues from widespread economic shutdowns, they have pushed the greenback’s value sharply higher, leading to a global shortage of dollars that has destabilised emerging markets. 

“This facility should help support the smooth functioning of the US Treasury market by providing an alternative temporary source of US dollars other than sales of securities in the open market,” the Fed said in a statement. 

The temporary facility for foreign and international monetary authorities, or FIMA, will allow foreign central banks and international organisations with accounts at the New York Fed to “temporarily exchange their US Treasury securities held with the Federal Reserve for US dollars, which can then be made available to institutions in their jurisdictions,” according to the statement. 

The move is part of a flurry of actions taken by the Fed to contain the damage from the coronavirus to the US and global economies.

The US central bank has lowered its main interest rate close to zero, announced unlimited purchases of US Treasuries and mortgage-backed securities guaranteed by government agencies, and resurrected a series of facilities dating back to the 2008 financial crisis to support ailing credit markets.

The Fed also has a crucial role in providing loans, loan guarantees and other help to corporate America as part of the $2tn stimulus package recently passed by Congress. 

On the international front, the Fed this month established swap lines with the European Central Bank, Bank of Japan, and the Bank of England, and their counterparts in Canada and Switzerland. It then extended those facilities to include other central banks including Mexico, Brazil, Australia and Singapore. 

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