SINGAPORE: The Monetary Authority of Singapore (MAS) announced on Thursday (Mar 19) the establishment of a US$60 billion (S$86.6 billion) swap facility with the US Federal Reserve, as the global economy comes under strain from the coronavirus outbreak.
Financial markets have been hit hard by the COVID-19 crisis as governments around the world ordered businesses to close and placed movement restrictions on their populations to limit its spread, shutting down large swathes of the global economy.
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The swap facility - which will be in place for at least six months - allows MAS to exchange Singapore dollars for US dollars, providing US dollar liquidity to financial institutions in Singapore.
"The swap facility complements MAS' management of the Singapore dollar (SGD) market," MAS said. "Through its market operations, MAS will continue to provide ample SGD liquidity to support the needs of the banking system."
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The US dollar functions as the world's reserve currency, involved in nearly 90 per cent of all foreign exchange trades last year, according to the Bank for International Settlements.
Many foreign companies and institutions also borrow in dollars, and economists worry that a sudden stop in the flow of funds to foreign economies could leave them unable to refund debts or get new loans.
The US dollar hit a 10-year high against the Singapore dollar at 1.4547 on Thursday.
The US Fed already has standing swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.
MAS announcement’s came after the Fed extended the swap line arrangements to the central banks of nine other countries including Singapore.
Apart from Singapore, the Fed will provide up to US$60 billion each to the central banks of Australia, Brazil, South Korea, Mexico and Sweden and US$30 billion each to Denmark, Norway and New Zealand.
“The swap line arrangements will contribute significantly to ensuring stable liquidity conditions in the USD funding markets in Singapore and globally,” MAS said.
“MAS will work out the operationalisation of the facility in consultation with the Federal Reserve, and will provide details next week on how it will be implemented in Singapore,” it added.