Major Central Banks Rush to Inject Dollars into Financial System

In a bid to stabilize the financial system and curb the economic impact of the coronavirus pandemic, major central banks around the world have taken significant steps to inject liquidity into the global financial system.

What is happening?

The Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan have all taken steps to ensure that banks have access to dollars in the face of a global liquidity squeeze–an event that threatens to dry up credit and destabilize the global financial system.

The moves come as governments around the world grapple with the economic fallout of the outbreak, which has led to the shutdown of entire economies and has caused a global recession.

Federal Reserve

The Federal Reserve cut interest rates to near zero and announced a massive $700 billion quantitative easing program.

European Central Bank

The European Central Bank launched a €750 billion ($815 billion) bond-buying program and decided to hold its key interest rate at -0.5%.

Bank of England

The Bank of England slashed its key interest rate to a historic low of 0.1%, ramped up its bond-buying program by £200 billion ($244 billion) and launched a new funding scheme for small businesses.

Bank of Japan

The Bank of Japan increased its purchases of exchange-traded funds and other risky assets, and offered to lend dollars to its banking system.

Why is this important?

The coronavirus outbreak has brought to the fore the importance of central banks in averting financial meltdowns. By injecting liquidity into the global financial system, central banks are hoping to prevent a credit crunch that could see banks fail and companies go bankrupt.

The moves by the major central banks come as the world’s top economies struggle to contain the pandemic and brace for an economic downturn that many are fearing will be worse than the global financial crisis of 2008.

Summary

In the face of the coronavirus pandemic, major central banks around the world have rushed to inject liquidity into the global financial system to prevent a credit crunch and stabilize the global economy. Governments and central banks are implementing unprecedented stimulus measures, highlighting the importance of central banks in averting financial meltdowns. It remains to be seen how effective these measures will be in mitigating the economic impact of the outbreak.

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