In a series of tweets, Arthur Hayes, one of the co-founders of the BitMex exchange, discussed using swap lines’ as a possible solution for the Fed to provide liquidity to financial institutions without provoking s political controversy.
Hayes claimed that it is politically toxic for the Fed to be seen rescuing overseas banks while many local small banks also need assistance. On the other hand, he observed that the Fed could not ignore that non-US institutions were selling treasuries into a liquid market, which caused more volatility.
The solution proposed by Hayes includes the Federal Reserve providing a swap line to a large central bank, such as the European Central Bank (ECB). This approach would enable them to have treasuries at par, provide the banks with dollars, and deal with deposit outflows without selling treasuries.
Swap lines are agreements made between central banks. They are essential because they enable central banks to trade currencies with each other. Consequently, the FED could provide the ECB with the necessary dollars via the swap line. Hayes postulated that, in this case, no sales of treasuries would occur.
US monetary issues
Significantly, these claims come amid repeated allegations that the United States government had “created out of thin air” a total of $300 billion to bail out financially troubled institutions that saw BTC and other cryptocurrencies rally. According to economist Peter Schiff, the Federal Reserve’s quantitative easing (QE) program totaling $300 billion has nullified the effects of four months of quantitative tightening (QT).
Crypto skeptic Peter Schiff forecasted that the inflation rate in the United States would be much higher in the weeks ahead.
