Discussion Board Replies

BUSI 303-B07

Discussion Board 3: Currency Swaps

Definition

A currency swap is defined as “the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.” (Hill & Hult, 2020, p. 277).

Summary

In “Central Banks Are Using Blockchain to Stabilize the Global Financial System”, Roger Huang outlines the affect that blockchain and cryptocurrency have had on monetary policy, especially in the realm of international currency swaps. The article shows how the Federal Reserve has engaged in several currency swaps, including the swap of December 12, 2017 with both the Swiss National Bank and the European Central Bank. According to Huang, the United States engaged in this currency swap in order to allow both the Swiss National and European Central Banks to “fulfill domestic demand for US dollars.” (Huang, 2019). Mentioning the Federal Reserve’s decision to keep open the swap lines that were created during the global recession of 2008, the article makes the conclusion that central banks are now able to easily engage in currency swaps due to the transferability of cryptocurrencies offered through blockchain technology.

Discussion

This article directly relates to currency swaps because it thoroughly outlines how the United States has engaged in several currency swaps with foreign governments in the wake of the financial crisis of 2008. Of the foreign governments that the Federal Reserve have chosen as being trustworthy enough to engage in such transactions, they include such countries as “Brazil, Mexico, Singapore, and South Korea” (Huang, 2019). Though the headline of this article indicates a discussion of the use of blockchain by central banks, the reality is that this topic was forsaken and most of the discussion dealt with the history of the Federal Reserve engaging in currency swaps as a means to help other nations from defaulting on their debts without actually losing money in the process.

Citation

Hill, C. W. L and Hult, G. T. M. (2020) Global business today. New York, New York: McGraw-Hill Education.