The risks and returns of ever-expanding swap and repo lines

Major central banks have significantly beefed up their liquidity support for foreign counterparties using their currencies during the past few years, as geopolitical strife and burgeoning fiscal debt makes potential capital market liquidity squeezes in key markets more likely and alternative currencies more attractive. Two main instruments are being adopted – swap lines and repurchase agreement facilities.

Swap lines allow central banks to exchange currency without having to post collateral. The