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Federal Reserve Opens Credit Line To Europe

US Federal Reserve has opened a program to ship US dollars to Europe, in response to the re-emergence of strains in US dollar short-term funding markets in Europe.

The Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank were other banks involved in the dollar swap effort.

The facilities are designed to help improve liquidity conditions in US dollar funding markets and to prevent the spread of strains to other markets and financial centers. Bank of Japan might also consider similar measures soon.

The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, ECB, and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of US dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously.

The arrangement with the Bank of Canada would support drawings of up to $30bn, as was the case previously.

The swap arrangements have been authorized through January 2011.