Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

I very much agree with the thrust of the question—it would take a very severe state of nature for us to sustain losses on these. We are protected by the full faith and credit of our central bank counterparty. In addition to that, when we give them dollars, we take their domestic currency. So I suppose, in some very extreme state of the world, one could imagine that the loan that was made in dollars defaulted on the central banks, the central bank chose not to make us whole, and the currency that was escrowed for us had depreciated significantly in value. But I’d say that you are multiplying three very small possibilities, particularly the last two, that the central bank would choose to default on us, and there would have to be such a substantial fall in their currency that it would reduce the value of that effective assurance or collateral or whatever you want to call it.

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