The Fed Put a Safety Net Under the Global Dollar. Could Trump Undermine It?

by Vincient Arnold
Barron’s

Foreign officials have recently become concerned that the Federal Reserve might refuse to extend its central bank swap lines during a crisis. While the Fed hasn’t changed its longstanding policy, Europeans (and their banks

) are taking the possibility seriously given the Trump administration’s willingness to take unprecedented actions in service of its economic goals. But denigrating the reliability of the global dollar safety net would be a self-harming policy.

Swap lines are arrangements the Fed strikes with other central banks to provide dollars in moments when liquidity is scarce. Versions of these financial-stability tools have existed for decades, but they came into widespread use during the 2008-09 financial crisis. The Fed’s provision of global dollar liquidity is a public good, but it also benefits the U.S. Dollar markets abroad provide credit to U.S. households and businesses. A collapse in those markets would result in contagion to the U.S.

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