FIMA Repo Facility

The FIMA Repo Facility is a mechanism established by the U.S. Federal Reserve to enhance global financial stability in response to the COVID-19 pandemic. It serves as a temporary alternative source of U.S. dollars for approved FIMA account holders of Treasury securities, aside from selling the securities in the open market.

FIMA account holders include central banks and other foreign monetary authorities that maintain accounts at the Federal Reserve Bank of New York (FRBNY).

The FIMA Repo Facility was launched by the Federal Reserve in March 2020. This temporary program was initiated in response to the COVID-19 pandemic, which led to a significant sell-off in U.S. Treasury securities and a tightening of global dollar funding markets. The facility was created to assist foreign central banks in fulfilling their dollar liquidity requirements and to ensure the smooth operation of global financial markets.

It enables foreign central banks and other international monetary authorities to temporarily swap their U.S. Treasury holdings for U.S. dollars, providing them with short-term liquidity during periods of financial stress or market disruptions. The facility aims to ease pressures on global U.S. dollar funding markets and support the efficient functioning of the financial system.

The FIMA Repo Facility functions through repurchase agreements, or repos, which are financial transactions where one party sells an asset, typically U.S. Treasury securities, to another party with an agreement to buy it back later at a set price. In the case of the FIMA Repo Facility, foreign central banks and international monetary authorities can engage in repo transactions with the Federal Reserve, temporarily exchanging their U.S. Treasury holdings for U.S. dollars.

These transactions are generally short-term, lasting overnight or for a few days. The interest rate applied to the repo transaction is set by the Federal Reserve, typically reflecting prevailing market interest rates.

The FIMA Repo Facility is vital for promoting global financial stability in several ways:

• Providing short-term liquidity: The facility grants foreign central banks and international monetary authorities access to short-term U.S. dollar liquidity, assisting them in managing the needs of their domestic financial institutions and addressing potential liquidity shortages.
• Alleviating pressure on U.S. dollar funding markets: By enabling foreign central banks to obtain U.S. dollar funding directly from the Federal Reserve, the FIMA Repo Facility helps reduce strain on global U.S. dollar funding markets, minimizing the necessity for foreign central banks to sell their U.S. Treasury holdings in the open market.
• Supporting the global financial system: Given that the U.S. dollar is the primary reserve currency worldwide, maintaining its stability and smooth operation is crucial for global financial stability. The FIMA Repo Facility is essential in ensuring that the global financial system continues to function effectively, especially during times of crisis or uncertainty.

As the world grapples with economic uncertainties, tools like the FIMA Repo Facility underscore the significance of central bank collaboration and innovative policy instruments in sustaining financial stability.