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Central banks extend US liquidity swap

Tuesday 21 December 2010 - by Will Henley

Central banks around the world have agreed to an extension of a seven month-old dollar liquidity swap arrangement with the US Federal Reserve.

The Fed coordinated the extension on Tuesday with the European Central Bank, Bank of Canada, Bank of England, Bank of Japan and Swiss National Bank, it said in a statement.

The extension of the swap arrangements - authorised by the US central bank's federal open market committee - were put in place in May 2010 as a result of strains in short-term European funding markets.

The swap lines, which were authorised to run until January 2011 and will now run to 1 August, provide the central banks with the capacity to conduct tenders of US dollars in their local markets at fixed local rates.

A swap line with the Bank of Canada allows for drawings of up to $30bn (€22.8bn).

The Bank of Canada said in a statement that it did not intend to draw on the facility "at this time" but said it is "prudent to maintain the agreement".

"Should the swap be drawn on, the details of the liquidity facilities provided would depend on the specific market circumstances at the time," it said.

"The Bank of Canada continues to closely monitor global market developments and remains committed to providing liquidity as required to support the stability of the Canadian financial system and the functioning of financial markets."

A spokesperson from the Bank of England said: "The Bank will continue its weekly tenders of US dollar funding at fixed interest rates each Wednesday until further notice, with counterparties able to borrow unlimited amounts against eligible collateral."

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