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Arthur Hayes believes that US dollar swap lines will benefit small banks

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Arthur Hayes believes that US dollar swap lines will benefit small banks

It is reported that Arthur Hayes, the founder of BitMEX, pushed that the US Federal Reserve’s provision of US dollar swap lines to other central banks would help reduce the selling of treasury bond bonds to the liquidity market and help small US banks.

Arthur Hayes: The Federal Reserve provides dollar swap lines to other central banks as a rescue method

Analysis based on this information:


In recent news, Arthur Hayes, the founder of BitMEX, reportedly advocated that the provision of US dollar swap lines by the US Federal Reserve to other central banks could help reduce the selling of treasury bond bonds and prove beneficial for small banks in the US.

A US dollar swap line is essentially a funding arrangement between two central banks; one bank exchanges US dollars with the other bank in exchange for their own currency. These swap lines are used to provide liquidity to the foreign central banks, and the aim is to prevent a shortage of USD liquidity in the system. The US Federal Reserve provides such swap lines to other central banks, and recently, they announced swap lines with nine new countries, including Brazil, Korea, and Mexico, in response to the ongoing Covid-19 pandemic.

Arthur Hayes believes that the provision of these swap lines will result in foreign central banks holding more US dollars, and therefore, fewer US treasury bond bonds will be sold to the liquidity market. This, in turn, will reduce the pressure on US banks to sell their treasury bond holdings into the market, and especially help small banks that are comparatively more vulnerable to short-term liquidity shocks. Hayes argues that these small banks could have resulted in a tidal wave of selling of US treasuries if the US Federal Reserve had not provided such swap lines.

Hayes’ comments assume that the main demand for US treasury bond bonds comes from foreign central banks. However, this is not necessarily true; while foreign central banks might hold a significant share of US treasuries, other institutional investors, such as hedge funds, insurance firms, and pension funds, also hold significant amounts. Therefore, the impact of bringing more US dollars into the global financial system on the US treasury market needs to be examined more broadly.

In conclusion, while Arthur Hayes’ comments might seem plausible, it is essential to evaluate their broad implications comprehensively. The provision of US dollar swap lines can reduce the pressure on small banks to sell treasuries, but it is not clear whether that will result in a significant impact on the overall US treasury market.

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