The Federal Reserve has opened a temporary repurchase agreement facility for foreign central banks to support the smooth functioning of financial markets.
The program will allow participants to temporarily exchange U.S. Treasuries for dollars, which can then be made available to institutions in their jurisdictions.
“This facility should help support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source of U.S. dollars other than sales of securities in the open market,” the Fed said in a statement Tuesday.
The dollar pared its gains after the announcement, while short-end Treasury yields held steady and U.S. stock futures remained down on the day.
The program, available April 6, is a new weapon in the Fed’s arsenal to stabilize dollar funding markets. The U.S. central bank said it “reduces the need for central banks to sell their Treasury securities outright and into illiquid markets,” helping stabilize trading in the world’s most secure and important asset.
“By allowing central banks to use their securities to raise dollars quickly and efficiently, the facility will also support local markets in U.S. dollars and bolster broader market confidence,” the Fed said. “Stabilizing foreign dollar markets, in turn, will support foreign economic conditions and thereby benefit the U.S. economy through many channels, including confidence and trade.”
The facility was authorized by the Federal Open Market Committee, according to the statement.
The Fed said the term of the repos will be overnight, but can be rolled over as needed. Transactions will be conducted at a rate of 25 basis points over the interest rate on excess reserves.
Outstanding transaction totals will be made public in the Fed’s weekly balance sheet report.
