Europe’s Debt Crisis Prompts Central Banks to Provide Dollar Liquidity
September 16th, 2011Via: Guardian:
Fears of a deepening of Europe’s debt crisis have prompted the world’s leading central banks to pump US dollars into the financial system, in a co-ordinated action designed to boost market confidence.
The Bank of England joined the US Federal Reserve, the European Central Bank, the Swiss National Bank and the Bank of Japan on Thursday to announce that they would flood money markets with dollars over the coming months.
The move, on the third anniversary of the collapse of the US investment bank Lehman Brothers, sent shares soaring in banks heavily exposed to debt default by Greece and the other struggling members of the 17-nation eurozone. The euro, which had been falling in recent days, rebounded, rising roughly 1% in European trading on Thursday.
Speaking in Washington, Christine Lagarde, the president of the International Monetary Fund, said: “They [the banks] are getting together and acting together. To me, that is the most important message.”
Lagarde warned that more action was needed.
“We have entered into a dangerous phase of the crisis,” she said. There is still a path to recovery, Lagarde said, but it is a “narrow” one.
Under the terms of the deal, banks will be able to bid for unlimited amounts of US dollars at fixed interest rates in three separate auctions. The first of these will be on 12 October.
Nick Parsons, head of strategy at National Australia Bank, said the decision to provide unlimited liquidity well into 2012 was a big show of support to the global banking system.
But he added: “If Greece were to default, an announcement that there would be unlimited liquidity available from central banks is one of the things you would want to have in place beforehand.”
Does anyone else see this as an attempt to hold the gold price below say 2 grand? Should make the “dollar” index float for a bit.
“They [the banks] are getting together and acting together. To me, that is the most important message.”
Con – spire, to breath together – textbook def – but acting together is policy {announced}… actionable.