From bazooka to backstop: the political economy of standing swap facilities

Abstract

The permanent international lender of last resort consists of a swap line network between six major central banks (C6), centring around the US Federal Reserve. Arguably, this network is a solution to a long-debated problem as it provides public emergency liquidity provision to the world’s largest financial market, the Eurodollar market. Drawing on exclusive interviews with monetary technocrats as well as a textual analysis of Federal Open Market Committee meeting transcripts over the course of 14 years, we reconstruct how this facility came into being. Building on Kalyanpur and Newman (2017) and Braun (2015), we develop an interpretive framework of bricolage to contextualise its formation: in times of crisis, central bankers rely on retrospection, experimentation and creative re-deployment to develop their tools. In non-crisis times, however, the tools that prevail are those that offer what we call ‘bureaucratic familiarity’: the C6 swap line network became a permanent feature of international finance because technocrats had got used to it.