How the Fed's Dollar Swap Lines Actually Work

A central bank liquidity swap line is a standing agreement between the Federal Reserve and a foreign central bank to exchange currencies temporarily so dollars can reach banks outside the United States; the Fed has held such standing lines with five central banks since October 31, 2013, per the Federal Reserve.

How does the currency exchange actually work?

A swap line is not a loan of dollars to a foreign government. The Federal Reserve delivers a set amount of dollars to a foreign central bank in return for an equivalent amount of that bank's own currency, both legs priced "at the same foreign exchange rate," per the Federal Reserve. At maturity, the transaction reverses: the foreign central bank returns the dollars and receives its currency back, again at the original rate, so neither side carries exchange-rate risk on the trade itself.

Maturities on these operations have ranged "from the next day or as far ahead as three months," per the Federal Reserve. The foreign central bank, not the Fed, decides how to allocate the dollars it receives — typically through auctions or fixed-rate operations lending to banks in its own jurisdiction. The Federal Reserve retains approval authority over each draw request, per the Federal Reserve.

The arrangement also runs in reverse: the Fed can draw on the foreign-currency side of the same lines to supply euros, yen, sterling, Canadian dollars or Swiss francs to U.S. institutions if needed, per the Federal Reserve Bank of New York.

Which central banks hold standing lines with the Fed?

Five institutions hold permanent, no-expiration swap arrangements with the Federal Reserve: the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, per the Federal Reserve Bank of New York. These five converted from temporary crisis facilities into standing arrangements on October 31, 2013, and remain in place "until further notice," per the Federal Reserve.

The New York Fed, which executes the operations under direction from the Federal Open Market Committee, also runs periodic test transactions "for the purpose of testing operational readiness," with results published weekly, per the Federal Reserve Bank of New York. Separately, smaller bilateral lines exist between the Fed and the Bank of Canada ($2 billion) and Banco de México ($3 billion) under the 1994 North American Framework Agreement, per the Federal Reserve Bank of New York.

The analysis: The five standing counterparties are the central banks of the currencies most heavily used in global trade and finance alongside the dollar. Making their access permanent rather than case-by-case removed the need for emergency negotiation the next time dollar funding markets seize up — the mechanism already exists; only the frequency and size of operations change.

Why do foreign banks need dollars from the Fed in the first place?

Banks outside the United States routinely hold dollar assets and dollar liabilities — trade finance, dollar-denominated bonds, derivatives — that their home central banks cannot create on their own, since only the Federal Reserve issues dollars, per Brookings. A domestic central bank can print its own currency without limit, but it cannot print dollars; when dollar funding markets tighten, foreign banks with dollar shortfalls are forced toward asset sales or costlier private borrowing, which can spread stress into other markets, per Brookings.

Swap lines let a foreign central bank act as a dollar lender of last resort to its own banking system rather than leaving those banks to bid up scarce dollars in the open market, per Brookings.

How large has swap-line usage gotten in past stress episodes?

Episode	Peak outstanding	Timing	Detail
Global financial crisis	Over $580 billion	December 2008	About 25% of total Federal Reserve assets at the time, per Brookings
COVID-19 pandemic	$470 billion	May 2020	Roughly 80% drawn by the European Central Bank and the Bank of Japan combined, per Brookings

The first Fed dollar swap lines date to the 1950s and 1960s Bretton Woods era, when the Fed built reciprocal currency arrangements to guard against runs on the dollar; by 1962 nine central banks held swap lines, and drawings between 1962 and 1969 totaled $7 billion, per Brookings. The crisis-era network launched in December 2007, was terminated in February 2010, then reopened that May before converting to the current permanent structure in 2013, per Brookings.

What changed with the March 2023 announcement?

On March 19, 2023, the Federal Reserve and the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank announced they would increase the frequency of seven-day-maturity dollar operations from weekly to daily, effective Monday, March 20, 2023, and running "at least through the end of April," per the Federal Reserve. The six institutions described the standing lines as "an important liquidity backstop to ease strains in global funding markets," per the Federal Reserve.

The analysis: A frequency change, rather than a new facility or a larger swap limit, is the standard first response available to the network — the standing arrangements let central banks adjust the cadence of an existing tool within a single announcement instead of negotiating new terms.

Frequently asked questions

What is a central bank swap line?

It is a standing agreement letting the Federal Reserve and a foreign central bank exchange currencies temporarily, so the foreign bank can lend dollars to institutions in its own jurisdiction and reverse the trade at a set future date, per the Federal Reserve.

How many central banks have standing dollar lines with the Fed?

Five hold standing arrangements: the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank. These converted from temporary crisis lines into permanent facilities on October 31, 2013, and remain active until further notice, per the Federal Reserve Bank of New York.

Who decides whether a swap draw is approved?

The foreign central bank initiates each request, choosing how much to draw and when. The Federal Reserve retains approval authority over every request made under the standing arrangement, meaning the line is available on demand but not automatic, per the Federal Reserve.

How large did swap-line balances get in 2008 and 2020?

Outstanding balances peaked above $580 billion in December 2008, roughly a quarter of total Federal Reserve assets at the time. During the pandemic, balances reached $470 billion in May 2020, with about 80% drawn by the European Central Bank and Bank of Japan combined, per Brookings.

What did the March 2023 change involve?

Six central banks, including the Fed, moved seven-day-maturity dollar operations from weekly to daily frequency starting March 20, 2023, continuing at least through the end of April 2023. The group called the standing lines an important liquidity backstop for global funding markets, per the Federal Reserve.

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