ECB, BoE extend currency swap for a year

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The European Central Bank said Thursday it and the Bank of England had extended a currency swap arrangement for a year in what economists called a preventive measure given tension on interbank lending markets.

An agreement to exchange up to 10 billion pounds (11.3 billion euros, $16.3 billion), will now be good until 28 September 2012, an ECB statement said.

An arrangement that had initially been announced in mid-December was to have expired at the end of September.

It allows the ECB to lend pounds to eurozone banks that might be finding it hard to borrow them directly from commercial banks in Britain, and is just one example of arrangements that exist between many major global central banks.

Oxford Economics economist Scott Livermore said he had not heard of specific problems being faced by eurozone banks needing access to pounds, and suggested that "it's probably more preventative than the treating of a crisis."

Berenberg Bank senior economist Christian Schulz said: "There is still quite a lot of stress in the banking sector so the signal that these arrangements remain in place is useful."

"It shows that central banks continue to understand their important role for the interbank funding market and its security," he added.

Schulz noted that 10 billion pounds was not a lot of money between central banks and added that as far as he knew, it had not been called upon to date.

© 2011 AFP

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