Talk:Central bank liquidity swap

This article includes the following passage:

"When a foreign central bank draws on its swap line to fund its dollar tender operations, it pays interest to the Federal Reserve in an amount equal to the interest the foreign central bank earns on its tender operations. The Federal Reserve holds the foreign currency that it acquires in the swap transaction at the foreign central bank (rather than lending it or investing it in private markets) and does not pay interest. The structure of the arrangement serves to avoid domestic currency reserve management difficulties for foreign central banks that could arise if the Federal Reserve actively invested the foreign currency holdings in the marketplace.[4]"

This seems to be describing the swaps that were carried out in order to increase dollar liquidity during a past period of deleveraging in which foreign redemptions by U.S. entities needing to shore up their cash reserves due to losses created a large need for dollars overseas.

However, given that the formal structure of a swap is symmetric, there is no reason to believe that the opposite could not occur; that is, that the Fed could invest the foreign currency it receives (e.g., Swiss francs) while the foreign central bank could sit on the dollars that it receives. It seems likely that this would occur in the recent currency swaps believed to be carried out by the Swiss National Bank in order to suppress the rise of the franc.

I don't have the ability to re-write this article along those lines, but I think that someone should do this to highlight the symmetry of the transaction rather than assuming that it is always being done in order to increase dollar liquidity overseas. — Preceding unsigned comment added by Diversitti (talk • contribs) 22:10, 16 August 2011 (UTC)