Gillian Tett: Federal Reserve’s swaps intervention will preserve dollar’s reach

Gillian Tett: Federal Reserve’s swaps intervention will preserve dollar’s reach from GATA

By Gillian Tett
Financial Times, London
Thursday, May 21, 2020

When Jay Powell, U.S. Federal Reserve chair, was grilled in Congress this week, the focus was on how the central bank has helped American companies and consumers during the pandemic. Senators should have also asked — but did not — what the Fed has done recently to help dollar markets outside U.S. shores.

That was a big oversight. When future financial historians study the Covid-19 shock, they will conclude that the Fed’s intervention in offshore dollar markets via swaps deals with other central banks was one of its most significant policy moves. Not only has the Fed’s action calmed markets, it has shored up the hegemony of the dollar-based global financial system for years to come.

To understand all this, some history is required. The concept of central bank swaps, in which two institutions exchange currencies, is not new. Such central bank co-operation had a “sustained pre-history from 1962-1998,” according to a Bank for International Settlements paper. But their use faded in the early 21st century as the Fed focused on onshore dollar markets and the American economy.

That changed abruptly in the 2008 crisis. Historian Adam Tooze notes that policymakers suddenly realised that non-U.S. financial companies, particularly in the eurozone, had built up massive, unbalanced dollar exposures. They owed dollars to investors but were unable to obtain enough of the currency in private markets, sparking panic. …

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Chris Powell

The Gold Anti-Trust Action Committee was organized in the fall of 1998 to expose, oppose, and litigate against collusion to control the price and supply of gold and related financial instruments. The committee arose from essays by Bill Murphy, a financial commentator on the Internet (, and by Chris Powell, a newspaper editor in Connecticut. Murphy's essays reported evidence of collusion among financial institutions to suppress the price of gold. Powell, whose newspaper had been involved in antitrust litigation, replied with an essay proposing that gold mining and investor interests should act on Murphy's essays by bringing antitrust lawsuits against financial institutions involved in the collusion against gold. The response to these essays was so favorable that the committee was formed and formally incorporated in Delaware in January 1999. Murphy became chairman and Powell secretary and treasurer.