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FACTBOX: What is the U.S. Exchange Stabilization Fund?

(Reuters) - The U.S. Treasury Department announced on Friday the establishment of a temporary guaranty program for the U.S. money market mutual fund industry.

President George W. Bush approved the use of up to $50 billion from the Exchange Stabilization Fund to help restore confidence in the funds, which have been buffeted by losses and withdrawals this week.

Below are some facts about the Exchange Stabilization Fund.

* The ESF can undertake three main types of operations -- the purchase or sale of foreign currency; the acquisition or use of special drawing rights, international reserve assets held at the International Monetary Fund; and loans or credits to foreign governments or entities. Also, the ESF can enter into “warehouse” swaps with the Federal Reserve System, but there have been no warehouse swaps outstanding since 1992.

* The fund began to conduct foreign exchange market intervention transactions in 1934.

* From 1936 to the present, the ESF has participated in more than 100 credit or loan arrangements with foreign governments or central banks.

* After World War II, the ESF conducted Treasury’s monetary gold transactions and widened its participation in credit arrangements.

* The ESF had a large number of swap lines after World War II, primarily with Latin American countries, but they were gradually eliminated.

* By 1970, only a swap line with Mexico remained and, in 1994, this swap line was brought under the North American Framework Agreement, which also covers Federal Reserve and Bank of Canada swap lines with Mexico. The United States made up to $20 billion available to Mexico to support the peso in 1995, with most if it from the ESF, though not all the cash was used.

* The Treasury Department also pledged dollars from the fund during the Asian financial crisis in 1997, and the Bush administration looked to the fund to provide a bridge loan of up to $1.5 billion for Uruguay in 2002.

-- SOURCE: U.S. Treasury Department and IMF Web sites, Reuters archives

Editing by Tom Hals

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