MAS sets up US$60 billion swap facility with US Federal Reserve

MAS intends to draw on this swap facility, which will be in place for at least six months, to provide US dollar liquidity to financial institutions in Singapore.
MAS intends to draw on this swap facility, which will be in place for at least six months, to provide US dollar liquidity to financial institutions in Singapore.PHOTO: ST FILE

The Monetary Authority of Singapore (MAS) last night announced the establishment of a US$60 billion (S$86.5 billion) swap facility with the US Federal Reserve in coordinated central bank actions to alleviate the ongoing strains on credit markets from the impact of the coronavirus outbreak.

MAS intends to draw on this swap facility, which will be in place for at least six months, to provide US dollar liquidity to financial institutions in Singapore. It will work out how the facility will operate in consultation with the United States central bank, and will provide details next week on how it will be implemented in Singapore.

The facility, known as a swap line, allows MAS to exchange Singapore currency with the Fed for an equivalent amount of US currency.

The move enables MAS to provide US dollars to the financial sector here for lending and trade in the US currency.

The Fed also said on Sunday that it would adjust a programme with five other major central banks, including the Bank of Japan and the European Central Bank, to make US dollars available overseas at near-zero interest rates and for periods of up to 84 days to ensure financial markets do not run short of currency outside the US.

Banks, companies and individual investors have been selling off shares and other assets to stock up on those considered safe on fears that business disruptions caused by the pandemic will plunge the global economy into recession.

This has resulted in a rush for US dollars that is causing havoc in the markets for bonds, currency and lending, and an outflow of funds in emerging markets.

The Fed has now extended the US dollar liquidity swap line arrangements to nine more central banks, including MAS. The others are from Australia, Brazil, Mexico, Denmark, South Korea, Norway, New Zealand and Sweden.

"The swap line arrangements will contribute significantly to ensuring stable liquidity conditions in the US dollar funding markets in Singapore and globally," said MAS.

MAS added that the new swap facility with the US complements its management of the Singapore dollar market. Through its market operations, MAS said it will continue to provide ample Singdollar liquidity to support the needs of the banking system. In addition, the MAS Standing Facility is available for all eligible banks to deposit or borrow Singdollar funds against specified collateral.

It said these measures will reinforce the stability of the financial system in Singapore and support its role in providing credit and essential financial services to the economy.

A version of this article appeared in the print edition of The Straits Times on March 20, 2020, with the headline 'MAS sets up US$60 billion swap facility with US Federal Reserve'. Print Edition | Subscribe