Foreign Official Reverse Repurchase Agreements

U.S. dollar liquidity swaps consist of two transactions. When a CBF buys its swap line with FRBNY, the CBF pays a certain amount of its currency to FRBNY in exchange for dollars at the applicable exchange rate. FRBNY holds the foreign currency in an account with the FCB. The dollars made available by FRBNY will then be deposited into an account managed by the FCB with FRBNY. At the same time, FRBNY and the FCB enter into a binding agreement for a second transaction that requires the FCB to return the dollars and FRBNY in order to return the foreign currency at a given future date at the same exchange rate as the original transaction. Since swap transactions are conducted at the same exchange rate as the original transaction, the value of the foreign exchange amounts recorded is not influenced by changes in the market exchange rate. At the end of the second transaction, the FCB compensates FRBNY at a market-based rate. In India, the Reserve Bank of India (RBI) uses repo and Reverse Repo to increase or reduce the money supply in the economy. The interest rate at which the RBI lends to commercial banks is referred to as “repo”). In the event of inflation, the RBI can increase the pension rate, which prevents banks from lending and reduces the money supply of the economy.

[17] From September 2020, RBI rest is set at 4.00% and reverse rest at 3.35%. [18] In May 2010, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank reinstated temporary U.S. dollar liquidity exchange lines to respond to renewed tensions in global U.S. dollar markets for short-term financing. On November 30, 2011, the FOMC decided, as an emergency response, to establish temporary liquidity exchange agreements for foreign currencies allowing the Federal Reserve to access liquidity in one of these currencies. In December 2012, the FOMC and these five FCBs approved an extension of the temporary U.S. dollar liquidity swap and liquidity swap agreements until February 1, 2014. In September 2019, the Federal Reserve began conducting overnight retirement operations, initially amounting to at least $75 billion to maintain the federal funds rate in the FOMC target band, Subsequently, the FOMC announced that pension and pension operations would continue overnight until April 2020, at least until April 2020, so that reserve supplies remain sufficient, even in times of sharp increase in non-provisional liabilities, and to mitigate the risk of money market pressure that could have a negative effect on the implementation of monetary policy. These measures are purely technical measures designed to support the effective implementation of the FOMC monetary policy and do not constitute a change in monetary policy. For more information on rest, see www.newyorkfed.org/markets/rrp_op_policies.html and www.newyorkfed.org/markets/repo-agreement-ops-faq.