The Foreign and International Monetary Authorities (FIMA) Repo Facility is a tool introduced by the U.S. Federal Reserve to support global financial stability. It allows foreign central banks and other international monetary authorities to temporarily exchange their U.S. Treasury securities for U.S. dollars. This mechanism provides an alternative source of dollar liquidity, especially during times of market stress.
This article discusses briefly what FIMA Repo Facility means: purpose and benefits, eligibility, and access to the Repo Facility.
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What is FIMA Repo Facility And How Does It Works
In a repurchase agreement (repo), one party sells securities to another with an agreement to repurchase them later at a set price. The FIMA Repo Facility enables foreign central banks to obtain U.S. dollars by selling their Treasury securities to the Federal Reserve and agreeing to repurchase them later. This process offers a temporary liquidity backstop, helping to stabilize global dollar funding markets.
Purpose and
Benefits of FIMA Repo Facility
The primary goal of the FIMA Repo Facility is to ensure smooth functioning of financial markets by providing dollar liquidity to foreign central banks. This support helps alleviate pressures in global dollar funding markets, which can influence financial conditions in the United States. By offering an alternative to selling Treasury securities in the open market, the facility helps maintain market stability during periods of stress.
Eligibility and Access
Most FIMA account holders, including foreign central banks and international monetary authorities with accounts at the Federal Reserve Bank of New York, are eligible to use the facility. These institutions must apply and receive approval from the Federal Reserve to participate.
Operational Details
The Repo Facility offers repurchase agreements with terms of overnight or seven calendar days. The interest rates for these agreements are set above typical market rates, making the facility primarily useful during unusual market stress. This design ensures that the facility serves as a backstop rather than a regular source of funding.
Impact on Global Financial Markets
<span style=”font-weight: 400;”>The FIMA Repo Facility helps stabilize global financial markets by providing a reliable source of dollar liquidity. It reduces the need for foreign central banks to sell U.S. Treasury securities during times of stress, which can help prevent disruptions in the Treasury market. Additionally, it supports the international role of the U.S. dollar by ensuring its availability during periods of market turbulence.
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