PHILADELPHIA Jan 4 Policymakers around the world should consider setting up more currency swap arrangements to make the global financial system more resilient to future crises, a top Bank of England policymaker said on Saturday.
Andrew Haldane, BoE director of financial stability, said the rise in financial interdependence around the world requires bigger backstops to prevent crises from spreading across borders.
Some of the biggest backstops developed since the 2007-09 financial crisis, he said, have been the bilateral deals between six of the world's biggest central banks to supply one another with short-term funding during periods of market stress. The aim of this central bank web is to keep liquidity in foreign currencies from drying up during a crisis.
"Within that there may be the seed of something important if that web could be extended beyond the six to embrace a fuller and broader range of countries," Haldane told an economics conference.
Last October, the Bank of Japan, the U.S. Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada and Switzerland made the currency swap agreements permanent. At the time, BOJ Governor Haruhiko Kuroda said there were no plans "to extend the swap arrangements beyond the six central banks."
The deals evolved from arrangements created during the financial crisis in which the Fed made short-term loans to other big central banks whose markets had grown short of U.S. dollar funding.
Haldane said international policymakers should also improve the ways in which they monitor global financial markets for stress and develop clear rules for when countries should put "grit in the wheels" of financial flows to maintain stability.