New Zealand: Currency Swapline with U.S. Federal Reserve
December 2nd, 2008KiwiCanDo has been investigating the recent and unprecedented agreement between the Reserve Bank of New Zealand and the U.S. Federal Reserve with regard to the creation of a US$15 billion currency swapline. The Fed has asked the New Zealand Reserve Bank authorities to keep the details of the agreement a secret.
As far as I can tell, the Fed has initiated swaplines with the following banking authorities:
Reserve Bank of Australia
Bank of Canada
Danmarks Nationalbank
Bank of England
European Central Bank
Bank of Japan
Reserve Bank of New Zealand
Norges Bank
Sveriges Riksbank
Swiss National Bank
Banco Central do Brasil
Banco de Mexico
Bank of Korea
Monetary Authority of Singapore
As far as I can tell, again, these swaplines have been authorized through April 30, 2009.
What event does the Fed see on the horizon that would prevent all of these entities from being able to access U.S. Dollars through the normal market mechanisms?
Do Colin Powell and Joe Biden know anything about it?
Why are New Zealand Reserve Bank authorities citing the Official Information Act when asked to provide full disclosure of the agreements that have been made with the U.S. Federal Reserve?
There are many more questions than answers at this stage.
Via: KiwiCanDo:
I took the time to investigate the Currency Swapline agreement between the RBNZ and Federal Reserve Bank.
In my opinion this agreement template is the one that will be used to destroy national currencies at the same time as to buy the key infrastructure of the various economies involved with the UK/USA pact.
To support your own research into the matter I have posted below all of the questions as answered by RBNZ spokeperson Mike Hannah.
1. How would a declining US$ impact New Zealand wealth should we be holding US currency ?
RBNZ: In principle it decreases wealth, although in this case note that the Bank ends up acting as intermediary – ie, we have a USD loan from the Fed and a USD investment with a bank that wants to borrow the USD from us.
Interpretation: Yes there are wealth implications for New Zealand including penalty interest payments going offshore and the potential to lose the colateral in the event of default.
2. Who can use access the swapline?
RBNZ: New Zealand banks (counter parties).
3. Please give me a scenario showing why a New Zealand bank (counter party) would want to do this through this facility.
RBNZ: With respect to this question only one scenario applies – this is where a RBNZ domestic markets counterparty (which includes both NZ and foreign banks with NZ interests) borrows USD from the Bank. In this case the bank concerned would be interested in accessing USD from the RBNZ because they were having difficulty in getting USD anywhere else in the market. This might be because a fund manager may have dealt with the bank to borrow USD for a period to hedge a foreign asset portfolio leaving the bank concerned needing to borrow USD cover the loan to the fund manager. In this case the bank would bid in the RBNZ’s USD lending operations and pay a penal rate to access USD to cover their shortfall.
4. What situations/events/scenarios does RBNZ foresee that could cause a New Zealand counterparty to have difficulty getting USD elsewhere in the market?
RBNZ: As in the example above, a New Zealand institution requires USD to meet a financial obligation (eg, repaying a loan). If the normal channels for raising USD are not functioning, the NZ party will not be able to access USD. This situation has not arisen yet, but the risk of it occurring was considered to be higher if the virtual closure of the US commercial paper market for the last month or so persisted. We wanted to have insurance that USD were accessible for NZ institutions. Remember, this is an “insurance”, it gives access to loans, and the facility has not yet been used. It will not be needed if markets resume normal operations, but it is prudent to have it to ensure access to USD is not a problem for NZ institutions.
5. Has a similar set of events happened before?
RBNZ: No.
6. Please list all of the channels for raising US dollars that RBNZ
defines as normal.
RBNZ Kelly Eckhold (Financial Markets Dept): Market participants can raise USD in a number of ways including:
– issuing commercial paper or long term debt securities in the US
markets
– issuing securities in the Euro-USD market (i.e the market for USD that
exists outside of the US)
– using the FX swaps market by using borrowings in any non USD currency
to exchange for USD for a period
– borrowing secured USD funds in the US repo market
– raising unsecured USD deposits from wholesale financial institutions
7. How was the US$15billion amount determined? Please provide the quantification method / justification for this amount.
RBNZ: No comment.
Significance of US$15bn to New Zealand:
The US$15b swapline represents:
– 37% of the market value of publicly traded shares new Zealand or
– 13.3% of New Zealand’s Gross Domestic Product for (2008) or
– 4.5 x NZ Super Fund
7. Can the NZ public see a copy of the full agreement? Please provide as much disclosure of the agreement as permitted
RBNZ: As noted before the Fed has asked we keep the agreement confidential – although the terms of the agreement have been described in these answers and earlier questions.
8. Which interest takes priority to RBNZ?:
– The New Zealand public
– The Fed
RBNZ: The Official Information Act allows us to withhold such information. We have given you as much detail as we can.
End.
i wonder if it is worth perusing the Reserve Bank Act to see if this might not be outside the Bank’s legal remit?
it seems pretty dodgy at first glance. the only reason I can see that would make them want to keep the agreement secret is the level of control the Fed is getting over the central banks of other sovereign nations. if disclosed it may be politically embarrassing…