Top central banks move to avoid global liquidity crunch

WASHINGTON Wed Nov 30, 2011 9:22am EST

U.S. dollar, euro and Swiss franc bank notes are seen in a bank in Budapest August 8, 2011. REUTERS/Bernadett Szabo

U.S. dollar, euro and Swiss franc bank notes are seen in a bank in Budapest August 8, 2011.

Credit: Reuters/Bernadett Szabo

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WASHINGTON (Reuters) - Central banks from the world's leading developed economies said on Wednesday they will take coordinated steps to prevent a lack of liquidity in the global financial system, as the euro zone attempts to find a way to stem its debt crisis.

The U.S. Federal Reserve, the European Central Bank and the central banks of Canada, Britain, Japan and Switzerland said in a joint statement they had agreed to lower the cost of existing dollar swap lines by 50 basis points from December 5.

Other measures included setting up bilateral swap arrangements between the central banks so that any bank could tap additional liquidity in their own currencies if necessary. The swap arrangements are good through Feb 1, 2013.

In the United States, the Fed noted that banks were not having difficulty now getting funds in short-term finding markets. But if conditions deteriorate, the U.S. central bank said it has "a range of tools available" to use as a backstop and would deploy them as necessary.

The surprise coordinated move by central banks was aimed at preventing global financial markets from coming under pressure that could potentially lead to a seizing up of credit.

"The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity," the banks said in typically stilted language.

(Reporting by William Schomberg and Glenn Somerville, Editing by Chizu Nomiyama)

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Comments (16)
AllForLight wrote:
I don’t get this. Someone has to explain to me where all the money is. If the *financial* system does not have enough ready cash to loan to businesses, where is the ready cash? Are interest rates not low enough? Please, someone who understands, explain to me why there is a liquidity crisis that must be addressed right now?

Nov 30, 2011 8:51am EST  --  Report as abuse
jdl51 wrote:
About time.

Nov 30, 2011 9:00am EST  --  Report as abuse
matthewslyman wrote:
@AllForLight: I don’t know but I think it’s because the rich still haven’t stopped hoarding their “liquidity” in gold, plus any new short-term asset bubbles they can identify (farm-land is presently a fashionable “investment” asset). In other words, instead of money going to where it’s needed most in the long term for everyone’s mutual benefit, it’s going to where the rich, powerful, selfish individuals think they can retain/increase personal value share in the short-term at everyone else’s expense. The free market is failing to fulfil its purpose because governments are failing in their leadership responsibility, destroying confidence by running deficits and setting a bad example. This is my personal guess…

Nov 30, 2011 9:02am EST  --  Report as abuse
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