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

Let me just state my understanding of this so that I can be corrected by Nathan or by Bill. These countries hold substantial amounts of their reserves in dollars. They hold a substantial fraction of those dollars in accounts at the New York Fed. If they defaulted on their piece of the swap and the falling value of their currency left us with some exposure, we would have the ability to take assets from their accounts to cover any loss. So it’s better than the fact that this is a sovereign credit and it is better than the fact that we have an asset on the other side of the swap, because they hold substantial foreign exchange reserves with us. The way to think about this is just as a mechanism to help them transform the composition of their dollar reserves in a way that might be more effective in responding to lender-of-last-resort needs in dollars, rather than having to sell Treasuries or agencies into the market in a period of panic or distress to meet that cash need. I meant it as a confirming question.

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