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FRM Part II · FRM Exam Part II · The US Dollar Shortage in Global Banking and the International Policy Response

Which feature of the post-crisis international policy response most directly institutionalised the dollar backstop for major economies?

Temporary Fed swap lines with several major central banks were converted into standing arrangements. This made the dollar backstop permanently available rather than requiring new announcements in each crisis, which supports confidence in dollar funding markets.

  1. AConversion of temporary Fed swap lines with several major central banks into standing arrangementsCorrect
  2. BReplacing the dollar with the IMF's SDR in private trade invoicing
  3. CProhibiting banks from borrowing in foreign currencies
  4. DMandating that all FX swaps be settled in the domestic currency

Explanation

In 2013 temporary swap lines among the Fed and several major central banks were converted to standing arrangements, so the backstop is permanently available. The other options did not occur or do not supply dollar liquidity.

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