Central banks in Europe announced on Monday that they will offer dollar loans in unlimited amounts, with terms ranging from seven to 84 days. The Bank of Japan will consider introducing similar measures.
The Bank of England, the European Central Bank (ECB), and the Swiss National Bank will offer loans denominated in U.S. dollars for terms of seven, 28, and 84 days, with a fixed interest rate for the entire repayment period, the ECB announced in a statement. This decision is part of the latest efforts by central banks in Europe, as well as the U.S. Federal Reserve and the Bank of Japan, to increase the supply of dollars to credit markets affected by problems.
By providing unlimited amounts of dollars to commercial banks as counterparties, the central banks aim to enhance liquidity in the dollar-denominated short-term loan markets, the statement further notes. “Counterparties in these operations will be able to take loans in desired amounts against appropriate collateral in the jurisdiction of each party,” the statement says.
The central banks added that they will continue their joint cooperation and emphasized that they will take all necessary measures to ensure sufficient liquidity in the short-term loan markets. Last week, central banks in Europe and North America decided to cut interest rates, and the People’s Bank of China and the Bank of Japan followed their example, respectively providing large amounts of money to struggling interbank markets. Indeed, these markets froze when banks began to hesitate in mutual lending due to the international financial crisis, as they were unsure whether borrowers would be able to repay loans. (H)
