Mona Ali in Phenomenal World:
In early 2020, the “dash for cash” in the US Treasury market prompted the Fed to relaunch its dollar swap lines, which it did in mid-March of that year. In the aftermath of the 2008 Global Financial Crisis (GFC), the New York Fed had established permanent arrangements to supply dollars to five key foreign central banks. But as the emerging pandemic rattled global financial markets, dollar swaps were temporarily extended to nine more foreign central banks. Less privileged foreign central banks not extended such swap lines were instead given access to the Fed’s brand-new Foreign and International Monetary Authorities (FIMA) repurchase agreement facility, which allowed them to exchange their US Treasury securities for dollars as an alternative to dumping the securities for cash in the open market. The move was part of a concerted suite of measures undertaken by the Fed to stabilize dollar funding markets. (Compared to peak swap use of $449 billion, FIMA Repo use peaked at a relatively paltry $1 billion.) That spring, the Fed balance sheet mushroomed from $4 to $7 trillion. The Fed’s decisive actions quashed any doubt that the world’s most powerful central bank would hesitate to assume the mantle of monetary hegemony. As of the beginning of 2022, Fed assets stand close to $9 trillion.
The coronavirus crisis highlighted stark disparities in financing capacity across the globe. Monetary and fiscal relief amounted to one-fifth of GDP in advanced economies, only six or seven percent of output in smaller economies, and a mere two percent of GDP in the poorest of nations. The US macroeconomy’s rebound—steeper than that of any other rich economy—is an outcome of its $5-trillion-plus stimulus. In 2021, per capita growth in low-income economies was a tenth of that in advanced economies, foregrounding the starkly divergent paths of economic recovery. Increased government spending in response to the pandemic birthed deficits and debt in advanced economies that were twice the size of those in poorer economies. However, given the strictures placed on poorer nations by the international financial hierarchy, for some financially subordinated economies, public debt accumulation has brought sovereign debt default closer to the horizon.
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