- Arthur Hayes said swap lines could provide liquidity without causing a political fuss.
- Swap lines are arrangements between central banks that allow them to exchange currencies.
- Economist Peter Schiff said FED’s $300B QE wiped out four months of QT.
In a series of tweets, Arthur Hayes, a co-founder of BitMex exchange, discussed using ‘swap lines’ as a potential solution for the US Federal Reserve (FED) to provide liquidity to foreign banks without causing political controversy.
Notably, Swap lines are arrangements between central banks that allow them to exchange currencies with each other. Hayes argued that it is ‘politically toxic’ for the FED to be seen bailing out foreign banks when many small domestic banks also need help. However, he noted that the Fed could not overlook non-US banks dumping treasuries into a liquid market, causing further instability.
According to the crypto founder, the suggested solution involves the FED giving a swap line to a major central bank like the European Central Bank (ECB). Under this solution, the ECB would allow EU banks to provide them with treasuries at par and then give dollars to the banks, allowing the banks to handle any deposit outflows without selling any treasuries.
Consequently, the ECB would get the dollars from the FED using the swap line. As a result, no treasuries are sold, Hayes theorized, adding that any negative profit or loss is borne by the central bank, which can absorb infinite losses.
Notably, these suggestions come after multiple reports that the US government has printed $300 billion ‘out of thin air’ to bail out struggling banks. Economist Peter Schiff expressed that the FED’s $300 billion quantitative easing (QE) has effectively wiped out four months of quantitative tightening (QT).
Schiff predicted that the US inflation would be much higher in the coming weeks.