The Swiss National Bank agreed to enter into a new temporary currency swap arrangement with the US Federal Reserve. The swap line enables the Federal Reserve to draw Swiss franc liquidity of up to CHF 40 billion against U.S. dollars when needed. The new swap line mirrors the existing arrangement that enables the SNB to draw US dollars against Swiss francs. BOTH SWAP arrangements are authorized through 30 October 2009.

( capitals mine ), link here, last paragraph:
http://www.snb.ch/en/mmr/reference/pre_20090406/source/pre_20090406.en.pdf

One of the great unexpected ironies of this crisis will be, against all expectation, a massive nominal appreciation of the dollar against its would be rivals. The dollar will emerge from this crisis with its status as the global reserve currency more firmly entrenched than ever before. And all the tedious, highly consensus, and endlessly repetitive predictions of a dollar collapse will result only in negative P(L), especially if expressed via a long EURUSD position.

I still stand by my analysis above.

Hello, Bueller…..I mean Buiter: “It is conceivable – the statements are worded quite clumsily – that the April 6, 2009 announcement is about swap arrangements additional to the swaps previously announced (on February 3, 2009). In that case, the size of the swap arrangements has effectively been doubled. The redundancy objection disappears, but the misleading framing objection continues to apply in spades. If this is indeed the case, my concerns (explained below) about the fate of the US dollars provided by the Fed in the original swaps are strengthened.

The second strange feature is that the April 6, 2009 statement by the Fed is misleading. It is clearly phrased to convey a sense of the Fed needing foreign exchange (euros, yen, Swiss francs and sterling) to provide this foreign currency liquidity to US financial institutions. That is rhubarb. The US dollar shortage abroad continues today in much the same way as on February 3, 2009 or on September 18, 2008. Financial institutions in the US can get foreign exchange liquidity quite readily from the US subsidiaries of Euro Area, British, Swiss and Japanese banks. They don’t need the Fed for that.”

YES! Thank you.

This doubles the original bet. The orginal bet stays around 300Bln; That bet is illiquid. Period. If the Fed really wanted those foreign currencies, what prevents it from netting this now 312 bln (H.4.1) swap? Its illiquid. I wonder if its just gone in a big black hole. Buiter suggests that is a risk.

I suggest the risk is real and that this ends up on the taxpayers plate and the Fed can fry for the “appropriation” and taxpayer liability. This was just a big shell con from the Fed to “market” its swap this way. More of the same swap….

but there are massive foreign deposits on the books of the majors. foreign capital may finally be repatriating.

iirc, this is fundamentally different not for the CBs but for their constituents. fed will now be capable of granting euro loans to american banks.

Indeed, it is a laughable notion on its face that the Fed needs euro, swiss, sterling, or yen liquidity at all, having recently acquired approximately half a trillion (dollar terms) of these very same currencies in the first swaps. In any event, the BIS data show that it is European and UK banks and corporates who are far more likely to have borrowed in dollars, rather than U.S. companies who might have borrowed in euros or sterling (remember when the dollar was a one way bet lower?..who wouldn’t want to borrow in dollars). There are no U.S. foreign currency borrowers who need to be bailed out….American spendthrifts ran up their debts in good old American dollars, of which the Fed of course has an unlimited supply.

In any event, given all the currencies at issue are freely convertible, if the U.S. for some reason needed foreign exchange, why not just buy it on the open market. This would of course drive down the value of the dollar, and drive up the value of euro and sterling. Somehow, I think the ECB is more concerned about a strong euro than the Fed is concerned about a weak dollar (I thought creating inflation was the whole point of QE)?

No, this is the same old wine in a new bottle. Europe borrowed too many dollars, invested them in risky assets which have blown up, and continues to face a dollar shortage. This latest swap line smokescreen is clever marketing to conceal the fact that the euro is taking on water and needs the Fed’s continued liquidity support. It is cover for an organized devaluation of the euro while paying lip service to the G20′s pledge of “no competitive devaluations.”