Central banks unite

A coalition of central banks, including Canada, the US, the EU, England, Japan, and Switzerland, are trying to keep dollars circulating through an achy-breaky banking system.

Driving the news: The banks have agreed to increase the frequency of US dollar swaps, revisiting a strategy deployed when the pandemic rocked the global economy. The move helped stave off a selloff and turned the Fed into the official “global lender of last resort.”

  • By allowing foreign central banks to spread USDs across their systems, the move calmed down markets and stopped a mass offloading of assets to raise quick cash. 

Why it matters: UBS may have rescued Credit Suisse, but concerns remain around the effects of this month’s spree of banking failures on the financial system. To calm any worries, central banks are ensuring they’re flush with greenbacks in the case of a liquidity crunch. 

  • A steady flow of USDs is vital for non-US banks, as they often have lots of USD-denominated obligations, and USDs can be hard to come by in times of mass financial stress. 

What’s next: Since rate hikes were a major factor in Silicon Valley Bank’s collapse (which, you may recall, kicked this whole situation off), some experts think the Fed will announce a pause to give banks a breather. But with inflation still running too hot, others aren’t so sure.