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Mr. Adolfo Barajas, Andrea Deghi, Mr. Salih Fendoglu, and Yizhi Xu

announcements of the Federal Reserve swap line on the cross-currency basis within a two-day window. 14 It should be noted that around the time of the swap line announcements, other policy actions were taken both by the Federal Reserve and on the fiscal front, which may have helped improve investor risk sentiment and may have had an impact on US dollar funding conditions. In particular, on March 31, the Federal Reserve also announced the establishment of a temporary repurchase agreement facility for foreign central banks and other international monetary authorities (FIMA

Mr. Adolfo Barajas, Andrea Deghi, Mr. Salih Fendoglu, and Yizhi Xu

outstanding swap lines and those that gained access to the new swap lines. On the other hand, the effect on non-swap-line currencies is not statistically significant ( Figure 7 , panel 1). 13 , 14 Figure 7. Effect of New Swap Line Announcements Sources: Bloomberg Finance L.P.; and IMF staff calculations. Note: Panel 1 shows the estimated impact of the recent swap line announcements on the three-month cross-currency basis (CCB), controlling for foreign exchange implied volatility, the bid-ask spread, the US dollar index, the Chicago Board Options Exchange

Mr. Adolfo Barajas, Andrea Deghi, Mr. Salih Fendoglu, and Yizhi Xu
This note analyzes recent trends in offshore US dollar funding markets and explores the drivers of dollar funding costs during the COVID-19 pandemic crisis. Preliminary evidence suggests that only part of the sharp increase in observed dollar funding costs can be attributed to the standard supply- and demand-side factors analyzed in the October 2019 Global Financial Stability Report (GFSR), including the dollar funding fragility of non-US global banks. Changes in market structure since the global financial crisis, as well as heightened uncertainty and tensions in the commercial paper market, may provide further explanations for the movements in dollar funding costs in late March 2020. The US Federal Reserve’s swap line arrangements have helped lessen strains in dollar funding markets, but funding pressure remains significant for some emerging market economies, notably those with-out access to the swap lines. Furthermore, tighter dollar funding conditions appear to have accompanied increases in financial stress in the home economies of affected non-US global banks and to have generated adverse spill-over effects in the form of cutbacks in cross-border lending.
International Monetary Fund. Research Dept.

the currencies of other emerging markets continued to depreciate. Therefore, it appears that the swap lines announcement was effective in stabilizing financial conditions in these two countries. Figure 4.11. Effects of Swap Line Announcements for Brazil and Mexico (Percent; changes after March 19, 2020) Sources: Bloomberg Finance L.P.; Haver Analytics; and IMF staff calculations. Note: BRA and MEX denote Brazil and Mexico, respectively. EMBI spreads are in percentage point deviations from those of March 19; exchange rates are in percent changes from