LIQUIDITY WATCH. WHAT A DIFFERENCE A WEEK MAKES!
. Federal Reserve: "Factors Affecting Reserve Balances", February 20
- Fed's Treasuries holdings: $778.9bn (+$23.6bn)
- Other central banks' Treasuries holdings: $1,264.1bn (-$2.6bn) (*)
- Other central banks' agency securities: $866.2 (+$19.9bn) (*)
- Global Dollar Liquidity Measure: $2,909.1bn (+$40.9bn)
(*) Off-balance-sheet items
What a difference a week makes! After last week's across-the-board declines, the latest Fed balance sheet manages to produce very robust gains. First, let me discount the increase in the Fed's own stock of Treasury holdings: ever since the central bank started its special liquidity program, the accounts have become more difficult to interpret. Thus, "Federal Reserve Credit" registers a normal increase, while the (rather misterious) "Other Federal Reserve Assets" plunge by more than $15bn.
Having said that, the data are unambiguously positive. Foreign central banks' holdings of agency securities have reached a new all-time high ($866bn), reflecting the still very positive mood of investors in the emerging world. Because they desire to invest more in their own countries, they sell dollars to their (commercial) banks, which forces the local central bank to increase the amount of securities held under custody at the Federal Reserve Bank in New York. As Fed Governor Kevin Warsh says, "liquidity is confidence".