The US Federal Reserve used just to manage monetary policy for the 12 ‘districts’ of the USA. But now, it is going global.
First, it opened unlimited “swap lines” with other G7 countries through the European Central Bank, the Bank of England and the Bank of Japan, as well as the Swiss National Bank. Then, last week, it did the same for Brazil, Mexico, New Zealand, Singapore and S Korea.
Those countries within the new “swap lines” can borrow from the USA in their own currencies – so the Fed takes the exchange rate risk. This is also something that has never happened before, and highlights just how seriously the Fed regards current problems in the world financial system. As Bloomberg comments, “5 years from now, Fed Chairman Ben Bernanke will be regarded either as brilliant or reckless for so directly reaching around the globe”.