The move is designed to increase the Riksbank’s ability to supply Sweden with additional dollars and improve overall liquidity in the financial markets.
“Sweden has been affected by the renewed wave of international financial unrest,” said Riksbank Governor Stefan Ingves in a statement.
“This agreement is a part of our precautionary measures and provides the Riksbank with additional flexibility to provide US dollar liquidity if the need should arise.”
Ingves added that Sweden’s financial stability nevertheless remains “satisfactory” and that the country’s banks are “profitable and solvent”.
Riksbank spokesperson Pernilla Meyersson stressed the move was strictly precautionary.
“We haven’t given out a single krona,” she told the TT news agency, adding that so far Swedish banks haven’t had trouble borrowing in the domestic or international markets.
The central banks of Australia, Denmark, and Norway entered into similar agreements, also known as swap lines, to help each address increasing pressure in short-term funding markets for the US dollar.
“This is a confirmation of what we’ve already seen since everything broke out. There is a lack of dollar liquidity in the financial system around the world. The Riksbank now has a direct line of access to new dollars if a bank needs it. Only the Fed can create new dollars,” said Robert Bergqvist, a head economist at the SEB bank, to the TT news agency.
“The idea is that this will be a short-term, temporary measure and don’t think it will have any real economic consequences.”
The Riksbank’s agreement with the Federal Reserve is set to expire on January 30th, 2009.