U.S. Treasury Secretary Scott Bessent on Tuesday said it would be reasonable for the Federal Reserve to consider increasing the size of a key emergency liquidity facility that Japanese authorities are looking to use in efforts to stabilise the yen, arguing that global bond markets have expanded significantly since the mechanism was created in 2020.
Speaking in an interview with CNBC, Bessent referred to the Federal Reserve’s Foreign and International Monetary Authorities (FIMA) repo facility and its network of central bank swap lines, saying these tools are designed to shield the U.S. economy from financial market stress originating overseas.
“The purpose is to protect the U.S. economy and to keep any volatility offshore, preventing it from reaching U.S. shores,” Bessent said, two days after confirming that the United States and Japan had jointly intervened in currency markets last week to support the yen.
The FIMA repo facility was established by the Fed during the market turmoil of 2020, allowing foreign central banks to temporarily exchange their holdings of U.S. Treasury securities for dollars. The facility was designed to prevent disorderly selling of Treasuries and ease dollar funding pressures during periods of financial stress.
Bessent said the scale of global markets has grown considerably since then, making a review of the facility’s size appropriate.
“When the FIMA facility was created in 2020, the size of the bond market was much smaller,” he said. “It would be reasonable for the Fed to consider up-sizing the facility.”
The comments come amid heightened attention on the Japanese yen, which has faced pressure from the wide interest rate gap between Japan and the United States. Japanese authorities have periodically intervened in currency markets to curb excessive volatility and support the yen.
Unlike direct currency intervention funded through reserves, the FIMA facility allows foreign authorities to obtain short-term dollar liquidity by posting U.S. Treasury securities as collateral. Bessent said this made it functionally similar to the Fed’s central bank swap lines.
“It’s a completely secure lending facility,” Bessent said. “The country posts collateral and we lend them the money to intervene, in this case. It is a very robust facility and was set up for occasions just like this.”
