The European Central Bank tapped a foreign exchange swap facility with the Federal Reserve earlier this month, borrowing $500 million. In exchange, the ECB puts up collateral of Euros worth around $500 million.
The ECB wants the dollars so it can lend them out to European banks, which have been having trouble borrowing dollars at affordable rates due to fears about their financial health.
But it’s worth taking a moment to pay attention to what actually happens mechanically. Because the way we talk about these swap facilities can create the illusion that somehow we’re sending boatloads full of dollars overseas and that the ECB is then sending us boatloads full of euros. Read more at CNBC
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