Repo Markets Gain Another $70 Billion, USD Continues to Weaken

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Federal reserve repo market

The New York Fed provided another massive cash injection into the repo market, this time adding over $70 billion.


According to recent reports, the Federal Reserve Bank of New York injected yet another major amount in temporary liquidity on December 4th. This time, the amount is even higher than the last one, which was added back in late September of this year.

Bitcoinist reported, the Fed decided to inject the financial market with $63.5 billion. Yesterday, they added another $70.1 billion in an intervention via Repos (repurchase agreements).

The banks supposedly offered collaterals in the form of mortgage securities ($15.2 billion) and treasuries ($54.9 billion). The New York Fed announced that it would accept it all.

Bitcoinist_Federal Reserve

Fed repo interventions keeping the peace

As some might be aware, the Fed sometimes accepts treasury and mortgage securities from certain banks as collateral for short-term loans. These loans are typically returned the next day, and they are a common practice that allows banks to keep their day-to-day liquidity.

Banks can then lend reserve balances to other banks, although this process goes without collaterals. The problem emerges when banks hesitate to provide these loans, which leads to a liquidity shortage. There could be several reasons why banks might hesitate to lend them money, but one of the most popular theories holds that they might not think of treasuries as risk-free collaterals anymore.

This is where the FED and repo interventions come into the picture. Basically, the Fed’s goal is to make sure that there is enough liquidity to keep the short-term borrowing rates stable, ranging from 1.5% to 1.75%.

This Tuesday, the fed-funds rate was at 1.55%, while the repo rate stood at 1.51%. However, to achieve these levels, the Fed had to intervene twice since September. Previously, it did not see that much activity since the financial crisis in 2008.

In other words, the money-market rates may have stabilized in the last few months, but the situation would have been a lot more difficult to deal with without the Fed’s interference.

Right now, the Federal Reserve Bank is buying treasury bills to create new reserves, which the banks will purchase later on, and hopefully stop relying on additional repo interventions.

Will fiat difficulties lead to the rise of crypto?

However, the question now is — what does all of this mean? The main issue is that the current events indicate that the fiat industry might be losing its credibility. The repo rates are jumping, and the Fed continues printing money out of thin air, which is bound to have negative consequences in the near future.

Amid the chaos, the crypto community stands rather shocked with the amount of money that the Federal Reserve Bank is injecting. Many are speculating whether or not the current situation might push crypto adoption, as the instability of fiat continues to drive people towards more trustworthy assets. Right now however, bitcoin price remains highly volatile as it reaches the yearly close. A $550 pump and dump in the last 24hrs is a strong reminder that the crypto market is far from mature.

A lot of questions are still unanswered, and the future of the financial industry remains to be seen. However, with everything that is going on in late 2019, many assume that people will have to turn to crypto in the near future since the banks are once again moving through shallow waters.

Do you think that the financial industry will manage to resolve these difficulties in 2020? Let us know your thoughts in the comments below.


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