What Have The Central Banks Of The World Done Now?
By: John Carney
Senior Editor, CNBC.com
The Federal Reserve and other banks announced Wednesday that they were engaging in a coordinated action to provide liquidity to Europe’s credit markets.
What essentially happened is that the Fed cut the interest rate it charges the European Central Bank to borrow dollars.
The ECB wants the dollars so it can lend them out to European banks, which have been having trouble borrowing dollars at affordable rates due to fears about their financial health.
It’s worth taking a moment to see what actually happens with these swap facilities because they can create the illusion we’re sending boatloads of dollars overseas and the ECB is sending us boatloads full of euros. . . the rest of the story.