FRANKFURT - THE European Central Bank launched on Monday its first ever one-week swap of Swiss francs for euros in a bid to increase flows of the Swiss currency among eurozone commercial banks.

Banks requested less than the 20 billion euros (S$40 million) worth of francs on offer however, the ECB said later, taking a total worth nearly 15.3 billion euros.

Meanwhile, the Swiss National Bank (SNB) carried out a simultaneous operation worth 7.5 billion euros.

The moves ware announced last week and were made possible by an agreement between the ECB and the Swiss National Bank to exchange currencies so the ECB could provide financing to eurozone banks in francs.

The one-week operation saw the central banks first buy euros and sell francs before reversing the operation one week later, in what is known as a foreign exchange swap.

The ECB gave a reference rate for the exchange of 1.5320 Swiss francs, though the actual rates at which the transactions will take place take into account foreign exchange risks being assumed by the central bank.

As a result, the ECB will apply a margin that takes the initial rate for the transaction's start on Wednesday to 1.4554 francs per euro, and will buy the francs back on October 29 at 1.454764 francs per euro.

The difference, 0.000636 or 6.36 swap points in banking terminology, is what banks pay for access to the francs.

On Friday, the single European currency traded for 1.5262 Swiss francs in London.

'Swiss franc funding needs of banks with no direct access to Swiss National Bank operations have increased, notably in the euro area,' the ECB said last Wednesday when it unveiled the operation.

The ECB already offers dollars to eurozone banks against collateral such as government or corporate bonds, and has said it will also accept euro cash in exchange for dollars in the future.

The measure that provides Swiss francs 'will be in place as long as needed, at least until January 2009', the ECB said last week.

For Bank of America economist Gilles Moec, 'the ECB has significantly stepped up its tolerance to risk', as a result of these and other measures concerning the collateral it accepts in exchange for liquidity, or cash.

The unusual measures appear to be easing pressure on interbank money markets, where banks normally lend and borrow from each other to back up the credit they extend and on which modern economies depend. -- AFP