Globally, a bit more than a quarter of electricity comes from wind, solar and other renewable sources which, as opposed to fossil fuels, emit little to no greenhouse gases or pollutants into the air. Most electricity is still generated by burning coal, oil, or gas, which produces carbon dioxide and nitrous oxide – powerful greenhouse gases that blanket the Earth and trap the sun’s heat.
While official sector liquidity hoarding and “dash for cash” type of activity is expected to be lower with access to these facilities, initial evidence does not show general differential changes in foreign exchange reserve holdings by foreign central banks in line with the type of liquidity access.Generating electricity and heat by burning fossil fuels causes a large chunk of global emissions. However, access to these facilities leave longer-term patterns of liquidity and capital flows across borders broadly unchanged. Cross border flows through banks for excess liquidity support purposes are reduced in the near term, and the risk sensitivity of equity and bond fund flows declines. These facilities are found to contribute to the narrowing of foreign exchange swap basis spreads and to reduce the sensitivity of global funding strain metrics to risk sentiment deterioration. We provide new evidence on how the central bank swap lines and FIMA repo facility reduce strains in global dollar funding markets and US Treasury markets during extreme stress events. In March 2020, the Federal Reserve eased the terms on its standing swap lines in collaboration with other central banks, reactivated temporary swap agreements, and then introduced the new Foreign and International Monetary Authorities (FIMA) repo facility.
Productivity, Innovation, and Entrepreneurship.International Finance and Macroeconomics.
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