Currency swap

A currency swap is an agreement between central banks to exchange currencies and make them available to one another, often to support access to foreign-currency funding.

Central bank: A public institution that manages a country's money, monetary policy, and often its banking system. Central banks are the parties that agree to provide each other with currencies.
Federal Reserve: The central bank of the United States. Its swap arrangements have supplied dollars to foreign central banks during market stress.
Bretton Woods system: The postwar international monetary system of fixed exchange rates centered on the US dollar and gold. Its collapse increased the importance of central-bank cooperation over exchange-rate and liquidity pressures.
Lender of last resort: An institution that provides emergency liquidity when other funding sources are unavailable. A central bank can act as a foreign lender of last resort through a swap with another central bank.
Swap line: A standing or temporary arrangement allowing two central banks to exchange currencies under agreed conditions. A swap line sets the terms and limits for drawing on the currency swap.
European Central Bank: The central bank responsible for monetary policy in the euro area. It has used dollar swap arrangements to support euro-area institutions' access to dollars.
Federal Reserve swap network: A network of reciprocal currency arrangements established by the Federal Reserve with foreign central banks. The network began in the 1960s and became a foundation for modern central-bank swap lines.
Financial contagion: The spread of financial distress from one institution, market, or country to others. Swap liquidity can interrupt funding disruptions that might otherwise transmit across borders.
Foreign exchange market: A global market where currencies are traded against one another. Swap-provided currency can ease pressure on foreign-exchange funding markets.
Dollar liquidity: The availability of US dollars for payments, lending, and financial transactions. Providing dollar liquidity is a central purpose of many Federal Reserve swap lines.

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