Home Uncategorized Exchange lines are a powerful weapon for the Federal Reserve

Exchange lines are a powerful weapon for the Federal Reserve

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Image: Mariner S. Eccles, Federal Reserve Board Building. Source: traveler1116 / iStockphoto



Swap lines it’s a tricky strategy. And the current global shift in geopolitics will lead to the first major implementation of swap lines due to the war, as opposed to the global financial crisis.


Warren Buffett once famously stated that derivatives are the financial weapon of mass destruction.


But exchange lines are much more destructive for the nation given the politicization of sovereign reserves.


Look out for those who think Putin will be able to break the dominance of the global US dollar.



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  • Right now, the Federal Reserve is meeting global demand for the U.S. dollar, while retaining the title of dollar as the king of the world’s currency.

With one brilliant step, he divided the world into allies and allies of the United States



Today, everyone needs the stability of the dollar in a world overturned by economic shocks.


It is clear that stability can only be relative to other countries ’own currencies, but American allies must deal with this reality.


They know it. And the Fed knows it.



  • That’s why the Fed has paved the way for access to U.S. dollars for government-identified ones true allies America.

And it has denied access to those who are deemed unfriendly.


It is very important that you understand this


And if you do, you will be ahead of almost everyone else.


The United States has created a system where all but the most ardent anti-American nations want to be included in friendly societies. In fact, many will come down anything to make a list.


How do they do it? Through the paging line.


Never heard of them? You are not alone.


For the most part, every time I remember SWAP strings, I caught myself in an empty spot.


I have not met a single person out of a hundred who knew about them. And that includes business leaders, politicians or even big personalities in the financial industry itself.


Most investors are not even aware of the existence of the program, much less aware of its importance.


But given how important swap lines are for the global economy, every investor needs to understand them and how they work.


What is an exchange line?


First, here’s how the Fed explains the swap line itself website:


The Federal Reserve has entered into agreements to establish central bank liquidity swap lines with a number of foreign central banks. Two types of swap lines have been created: liquidity lines in dollars and liquidity lines in foreign currency. Swap lines are designed to improve liquidity conditions in dollar-financed markets in the United States and abroad by providing foreign central banks with the ability to deliver U.S. dollar-financed institutions to their jurisdictions during times of market stress. Similarly, swap lines provide the Federal Reserve with the ability to offer foreign currency liquidity to U.S. financial institutions if the Federal Reserve deems such actions appropriate. These arrangements have helped ease tensions in financial markets and mitigate their impact on economic conditions. Swap lines maintain financial stability and serve as prudent safeguards for liquidity.


Here’s how I think about them:


  • If you to have access to the US exchange line, you are what I call + Swap The line of the nation.

  • If you do not have access to the paging line you a – Swap places The line of the nation.

Exchange lines are financial lifelines for countries


On the wave of any global panic (the last example is a pandemic) …


Many central banks are asking America to provide financial assistance to at least relieve the stress caused by the lack of US dollars.


Exchange lines have provided this relief and will continue to do so.


They are literally lifelines. And they are also debts.



  • All of these borrowed dollars must be repaid in US dollars with interest, too demanding US dollars.

This is ingenious because the demand for the US dollar generates additional demand.


And this will be even more true during the global restructuring of power, similar to what is happening now.


For countries struggling with inflation, it will be paramount to join a group of privileges capable of using swap lines.


Here is a list of countries that have access to SWAP lines in US dollars (currently):



Click to enlarge


Countries outside the group – negative line of exchange (– Swap places) countries – will struggle with access to US dollars.


Exchange lines are important for politicians and investors


The result of how this program is set up is that countries that receive swap lines will follow any provisions they are asked to follow. They will have no choice.


Suppose you want to get a blessed line of exchange with the US …


In this case, you need to be careful not to contradict the hand that feeds you.


This means not in any way joining countries identified as unfriendly, and agreeing to abide by any restrictions, such as sanctions imposed by the U.S. government.


Fighting nations demand emergency access to US dollars and cannot get them …



  • May be involved in the expropriation of foreign-owned assets as the global recession deepens.

For example:


Last year, Papua New Guinea recalled Barric Gold ( GOLD) social license. A few months ago, Barik handed over 51% of the mine’s shares to the PNG government. Now the mine is back in production.


The PNG government is not the only country that stretches its muscles …


  • Chile’s new left-wing president Borik begins his rule, and Chile changes its tax code, leaving earners up to 75% taxable.

  • And most recently, Kyrgyzstan seized the gold mine “Centerra” Kumtar.

Either that, or face severe depressions or revolutionary uprisings of their citizens (or both).


Therefore, American businesses operating in these locations are better off being wary (and so are their investors).


Exchange lines will always protect American interests


As global unrest progresses, more countries may emerge to be provided with replacement lines. But don’t forget that alternate lines will always protect American interests.


Make no mistake: this is big business and even more power …


The last time foreign central banks withdrew this amount from US swap lines was in the midst of the COVID-19 crisis in 2020.


The exchange lines worked during the 2008 global financial crisis and prevented a complete global financial crash. The same thing happened during the COVID-19 crisis.


But that’s just the tip of the iceberg.


Few want them closed, and about eighty-five countries have applied for replacement lines in the United States. Currently, only 14 central banks have been approved, with the EU technically representing 27 countries.


In fact, Indian Prime Minister Narendra Modi has publicly admitted to “envy change the line”. To be approved, all of these countries must strengthen their positions as U.S. allies by adhering to our policies.


Do you think there will be? Yes, I do too.


And with Russia’s military attack on Ukraine, allies (with manned lines) and those who want access to US swap lines will be tested.


More nations will be added


I expect that over time these critical lines of exchange will be enlarged and more nations will slowly be added.


They will abide by the conditions set by the US government – both financially and geopolitically – but they will join.


As monetary and fiscal policies merge into one, it is only a matter of time before the president uses swap lines as a major geopolitical lever.


Exchange lines are very important and they will dictate global alliances and policies. So pay attention to them.


Because I promise you, they will have an impact on companies, investments and, ultimately, on the very fabric of our world.



  • If you have a producing asset in the negative replacement line (-MEMORY) countries, you MUST prepare for possible failures and for things to go wrong.

It is about a proper understanding of risk and price.


What went unnoticed in the resource sector.


Swap lines and your portfolio


Key points:



1. I believe that countries that have existing swap lines will not treat foreign operating organizations (US companies) to the same extent as – Swap places The line of nations will be.



2. I still expect higher taxes in all countries, as this is the only thing that politicians around the world have done effectively for a long time.



That means mining assets + Swap Linear nations will not nationalize their gold mines, copper mines, etc.



3. Countries with existing swap lines in the US will not impose restrictions on currency exchange for foreign (US) companies operating there. – Swap places Linear nations can do that, and many have already.


This will reduce (and in some cases prevent) these US dollars – Swap places Line Nations will not be sent home as a dividend to the company’s owners.



Marin Katusya is the founder Katusha’s studyan independent investment research firm.


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Stock News Contributor: Marin Katusya


Source: Stock news

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