It might seem crazy: As the economy shuts down, the U.S. Federal Reserve has begun sending billions of dollars to central banks all over the world. But dollars aren't just the currency in your wallet -- they're the lynchpin of global trade.
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The answer has to do with the Fed's unique position in the global economy. Dollars are the lynchpin of global trade. International loans, debts, and bank transactions are largely done with dollars. Foreign central banks need dollars to stabilize their financial systems. The dollar isn't just America's money. It's the world's money. It's why when the COVID-19 crisis hit, there was arush to get dollars around the globe.
In opening up these swap lines, the Fed is behaving kinda like it's the central bank to the world. But this isn't altruism. These pipelines of dollars to important trading partners ultimately serve the American economy. The US needs world trade, too. That's why, for the second time this century, the Fed is enabling the swaps, allowing other countries to access the Fed's limitless reserve of dollars as though they were American banks in need of a loan.
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