Staff Working Paper No. 977
By Gerardo Ferrara, Philippe Mueller, Ganesh Viswanath-Natraj and Junxuan Wang
This paper investigates the impact of central bank swap lines during the 2020 pandemic using micro‑level data. Institutions relying on these swap lines tend to be better capitalised due to stringent collateral requirements. Combining data on FX derivative contracts with dealers that draw on USD swap lines at the Bank of England, we find that swap line participants engage in more favourable pricing of forward contracts, reduce their gross outstanding FX exposures, and increase their net supply of USD forwards to non‑financial institutions. Our findings support the use of swap lines in reducing FX market mispricing and providing cross‑border liquidity.
This version was updated in April 2024.
Central bank swap lines: micro-level evidence