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What central banks are doing to safeguard financial stability and why they must proceed with caution

Central banks are reaching into their toolkits to shore up the global financial system.

Trying to maintain some stability. David Gyung/Shutterstock

Before a crucial week of interest rate decisions for central banks, and on the eve of the emergency takeover of banking giant Credit Suisse, the Bank of England and five other major central banks announced a coordinated effort to boost the flow of US dollars through the global financial system.

Their aim was to keep credit flowing to businesses and households during recent banking sector turmoil. This had to coincide with ongoing attempts to control inflation amid market chaos.

The measure implemented by the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank and the US Federal Reserve extended existing arrangements called “liquidity swaps” by increasing the frequency with which these central banks can exchange US dollars, from weekly to daily, at least until the end of April 2023.

Liquidity swap agreements are an important channel through which US dollars are made readily available to all major countries. The change in frequency from weekly to daily is designed to shore up stability. But uncertainty remains about whether the financial system has recovered from recent turmoil, and such tools still carry risks.

What are liquidity swaps?

Liquidity swap agreements are commonly used to enable central banks to exchange currencies using an agreement based on collateralised loans. They allow a central bank (the recipient) to obtain foreign currency from another (the source) and distribute it to commercial banks in their own country.

Agreements are often reciprocal, in that there is a two-way liquidity line and either bank can take up the recipient or source role. Central banks have a multitude of these agreements in place at any one time with other key central banks.

The reason for the recent increase in the availability of US dollars through these agreements is that the dollar is the dominant global currency. It plays a large role in trade and comprises significant chunks of investors’ portfolio holdings.

Of course, commercial banks have assets and liabilities denominated in many different currencies. But it’s not unheard of for non-US banks to have large – sometimes even roughly the same – amounts of US dollar-denominated assets as US banks.

So, these liquidity lines provide a way for commercial banks to get a currency they need but that their central bank may not have in abundance. Without this tool, non-US banks would have to acquire US dollars through their own markets or by lending in non-US markets in exchange for US dollars.

But any stress in the market, such we have seen recently with Credit Suisse, can lead to increased demand for cash as investors try to safeguard their assets. Because of the dominance of the US dollar in the global financial system, this can cause a shortage of dollars available to non-US banks. These banks then have to turn to their own central banks for US dollars – and this is where swap lines come in.

Lifebuoy and a golden dollar symbol on blue sea and sky background.
Plain sailing ahead? rawf8/Shutterstock

Lender of last resort

In a world of interconnected markets, negative financial events can spread quickly. Coordinated movements by central banks remind everyone that they can and will act as a lender of last resort.

The chart below shows the weekly average amount of US dollars transacted through these liquidity lines. These trades tend to increase during adverse times, such as between 2008 and 2010 due to the global financial crisis, and in 2020 at the beginning of the COVID pandemic.

Use of USD central bank liquidity swaps:

Line graph showing use of central bank USD swap facilities, with significant increases during the 2008 global financial crisis and the COVID pandemic.
USD central bank liquidity swaps (2005-2020). Author provided using data from the board of governors of the Federal Reserve System.

So, when central banks boost accessibility to dollars through these liquidity lines – as they are now – it suggests they are concerned about whether weekly access to US dollars is enough. In other words, when they have growing concerns about financial stability, they want to remind markets that they will act as a lender of last resort.

For the recipient central banks, the active lines can help prevent costly bank failures and can dampen domestic concerns about bank runs. For the source (typically the Federal Reserve), the liquidity lines maintain demand for US-denominated assets and prevent spikes in interest rates, which in turn supports US interests.

But this gives rise to another problem: moral hazard. The increasing frequency of liquidity lines can act like a subsidy for US dollar-based activities. Excessive amounts of this behaviour can in turn cause more instability even as central banks are trying to calm markets with these tools.

Read more: What does 'moral hazard' mean? A scholar of financial regulation explains why it's risky for the government to rescue banks

Financial (in)stability

And moral hazard is not the only kind of risk these tools carry – liquidity lines can act as a useful medicine, but they do have side effects. There are two key components to a liquidity line that determines the potential risk to, and broader effect on, the financial system.

The first comes from the way they are agreed between central banks, and the second comes from how the recipient central bank passes the US dollars from the swap on to commercial banks in its own country. A recipient central bank is solely responsible for paying the source central bank for the US dollars, so the source central bank does not know the identity of the beneficiary banks in the commercial markets.

This creates supervisory and regulatory problems because the source is not able to regulate the foreign commercial banks that access these swaps via recipient banks. All central banks have their own incentives and rules around how and why they operate. So, this exposes a central bank to any risks arising from the decisions made by banks in other jurisdictions, some of which will operate based on different incentives and oversight.

This is why central banks need to use such tools with caution, particularly when they are trying to encourage stability. Liquidity lines can actually cause fires started in one country to spread through others, which could destabilise the global financial markets.

Drew Woodhouse does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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China Auto Sales Jump 55% Year Over Year As Price Cuts Continue To Move NEV Metal

China Auto Sales Jump 55% Year Over Year As Price Cuts Continue To Move NEV Metal

Retail sales of passenger vehicles scorched higher in May,…



China Auto Sales Jump 55% Year Over Year As Price Cuts Continue To Move NEV Metal

Retail sales of passenger vehicles scorched higher in May, with 1.76 million units sold, according to preliminary data from the China Passenger Car Association released this week. 

The sales figure represents 8% growth from the month prior. As has been the case over the last several years, new energy vehicles continue to grow disproportionately to the rest of the sector, driving sales higher.

Last month 557,000 NEVs were sold, growth of 55% year over year and 6% sequentially, according to a Bloomberg wrap up of the data. 

The sales boost comes as the country slashed prices to move metal throughout the first 5 months of the year. In late May we noted that China's auto industry association was urging automakers to "cool" the hype behind price cuts that were sweeping across the country. 

The price cuts were getting so egregious that the China Association of Automobile Manufacturers went so far as to put out a message on its official WeChat account, stating that "a price war is not a long-term solution". Instead "automakers should work harder on technology and branding," it said at the time.

Recall we wrote in May that most major automakers were slashing prices in China. The move is coming after lifting pandemic controls failed to spur significant demand in China, the Wall Street Journal reported last month. Ford and GM will be joined by BMW and Volkswagen in offering the discounts and promotions on EVs, the report says. 

At the time, Ford was offering $6,000 off its Mustang Mach-E, putting the standard version of its EV at just $31,000. In April, prior to the discounts, only 84 of the vehicles were sold, compared to 1,500 sales in December. There was some pulling forward of demand due to the phasing out of subsidies heading into the new year, and Ford had also cut prices by about 9% in December. 

A spokesperson for Ford called it a "stock clearance" at the time. 

Discounts at Volkswagen ranged from around $2,200 to $7,300 a car. Its electric ID series is seeing price cuts of almost $6,000. The company called the cuts "temporary promotions due to general reluctance among car buyers, the new emissions rule and discounts offered by competitors."

China followed suit, and thus, now we have the sales numbers to prove it...

Tyler Durden Wed, 06/07/2023 - 20:00

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World Bank: Global Economic Growth Expected To Slow To 2008 Levels

World Bank: Global Economic Growth Expected To Slow To 2008 Levels

Authored by Michael Maharrey via,

Most people in the mainstream…



World Bank: Global Economic Growth Expected To Slow To 2008 Levels

Authored by Michael Maharrey via,

Most people in the mainstream concede that the economy is heading for a recession, but the consensus seems to be that downturn will be short and shallow. Projections by the World Bank undercut that optimism.

According to the World Bank, global growth in 2023 will slow to the lowest level since the 2008 financial crisis.

In other words, the World Bank is predicting the beginning of Great Recession 2.0.

You might recall that the Great Recession was neither short nor shallow.

In fact, World Bank Group chief economist and senior vice president Indermit Gill said, “The world economy is in a precarious position.”

According to the World Bank’s new Global Economic Prospects report, global growth is projected to decelerate to 2.1% this year, falling from 3.1% in 2022. The bank forecasts a significant slowdown during the last half of this year.

That would match the global growth rate during the 2008 financial crisis.

According to the World Bank, higher interest rates, inflation, and more restrictive credit conditions will drive the economic downturn.

The report forecasts that growth in advanced economies will slow from 2.6% in 2022 to 0.7% this year and remain weak in 2024.

Emerging market economies will feel significant pain from the economic slowdown. Yahoo Finance reported, “Higher interest rates are a problem for emerging markets, which already were reeling from the overlapping shocks of the pandemic and the Russian invasion of Ukraine. They make it harder for those economies to service debt loans denominated in US dollars.”

The World Bank report paints a bleak picture.

The world economy remains hobbled. Besieged by high inflation, tight global financial markets, and record debt levels, many countries are simply growing poorer.”

Absent from the World Bank analysis is any mention of how more than a decade of artificially low interest rates and trillions of dollars in quantitative easing by central banks created the wave of inflation that continues to sweep the globe, along with massive levels of debt and all kinds of economic bubbles.

If you listen to the mainstream narrative, you would think inflation just came out of nowhere, and central banks are innocent victims nobly struggling to save the day by raising interest rates. Pundits fret about rising rates but never mention that rates were only so low for so long because of the actions of central banks. And they seem oblivious to the consequences of those policies.

But being oblivious doesn’t shield you from the impact of those consequences.

In reality, central banks and governments implemented policies intended to incentivize the accumulation of debt. They created trillions of dollars out of thin air and showered the world with stimulus, unleashing the inflation monster. And now they’re trying to battle the dragon they set loose by raising interest rates. This will inevitably pop the bubble they intentionally blew up. That’s why the World Bank is forecasting Great Recession-era growth. All of this was entirely predictable.

After all, artificially low interest rates are the mother’s milk of a global economy built on easy money and debt. When you take away the milk, the baby gets hungry. That’s what’s happening today. With interest rates rising, the bubbles are starting to pop.

And it’s probably going to be much worse than most people realize. There are more malinvestments, more debt, and more bubbles in the global economy today than there were in 2008. There is every reason to believe the bust will be much worse today than it was then.

In other words, you can strike “short” and “shallow” from your recession vocabulary.

Even the World Bank is hinting at this.

Tyler Durden Wed, 06/07/2023 - 15:20

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DNAmFitAge: Biological age indicator incorporating physical fitness

“We expect DNAmFitAge will be a useful biomarker for quantifying fitness benefits at an epigenetic level and can be used to evaluate exercise-based interventions.”…



“We expect DNAmFitAge will be a useful biomarker for quantifying fitness benefits at an epigenetic level and can be used to evaluate exercise-based interventions.”

Credit: 2023 McGreevy et al.

“We expect DNAmFitAge will be a useful biomarker for quantifying fitness benefits at an epigenetic level and can be used to evaluate exercise-based interventions.”

BUFFALO, NY- June 7, 2023 – A new research paper was published in Aging (listed by MEDLINE/PubMed as “Aging (Albany NY)” and “Aging-US” by Web of Science) Volume 15, Issue 10, entitled, “DNAmFitAge: biological age indicator incorporating physical fitness.”

Physical fitness is a well-known correlate of health and the aging process and DNA methylation (DNAm) data can capture aging via epigenetic clocks. However, current epigenetic clocks did not yet use measures of mobility, strength, lung, or endurance fitness in their construction. 

In this new study, researchers Kristen M. McGreevy, Zsolt Radak, Ferenc Torma, Matyas Jokai, Ake T. Lu, Daniel W. Belsky, Alexandra Binder, Riccardo E. Marioni, Luigi Ferrucci, Ewelina Pośpiech, Wojciech Branicki, Andrzej Ossowski, Aneta Sitek, Magdalena Spólnicka, Laura M. Raffield, Alex P. Reiner, Simon Cox, Michael Kobor, David L. Corcoran, and Steve Horvath from the University of California Los Angeles, University of Physical Education, Altos Labs, Columbia University Mailman School of Public Health, University of Hawaii, University of Edinburgh, National Institute on Aging, Jagiellonian University, Pomeranian Medical University in Szczecin, University of Łódź, Central Forensic Laboratory of the Police in Warsaw, Poland, University of North Carolina at Chapel Hill, University of Washington, and University of British Columbia develop blood-based DNAm biomarkers for fitness parameters including gait speed (walking speed), maximum handgrip strength, forced expiratory volume in one second (FEV1), and maximal oxygen uptake (VO2max) which have modest correlation with fitness parameters in five large-scale validation datasets (average r between 0.16–0.48). 

“These parameters were chosen because handgrip strength and VO2max provide insight into the two main categories of fitness: strength and endurance [23], and gait speed and FEV1 provide insight into fitness-related organ function: mobility and lung function [8, 24].”

The researchers then used these DNAm fitness parameter biomarkers with DNAmGrimAge, a DNAm mortality risk estimate, to construct DNAmFitAge, a new biological age indicator that incorporates physical fitness. DNAmFitAge was associated with low-intermediate physical activity levels across validation datasets (p = 6.4E-13), and younger/fitter DNAmFitAge corresponds to stronger DNAm fitness parameters in both males and females. 

DNAmFitAge was lower (p = 0.046) and DNAmVO2max is higher (p = 0.023) in male body builders compared to controls. Physically fit people had a younger DNAmFitAge and experienced better age-related outcomes: lower mortality risk (p = 7.2E-51), coronary heart disease risk (p = 2.6E-8), and increased disease-free status (p = 1.1E-7). These new DNAm biomarkers provide researchers a new method to incorporate physical fitness into epigenetic clocks.

“Our newly constructed DNAm biomarkers and DNAmFitAge provide researchers and physicians a new method to incorporate physical fitness into epigenetic clocks and emphasizes the effect lifestyle has on the aging methylome.”

Read the full study: DOI: 

Corresponding Authors: Kristen M. McGreevy, Zsolt Radak, Steve Horvath

Corresponding Emails:,, 

Keywords: epigenetics, aging, physical fitness, biological age, DNA methylation

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About Aging-US:

Launched in 2009, Aging publishes papers of general interest and biological significance in all fields of aging research and age-related diseases, including cancer—and now, with a special focus on COVID-19 vulnerability as an age-dependent syndrome. Topics in Aging go beyond traditional gerontology, including, but not limited to, cellular and molecular biology, human age-related diseases, pathology in model organisms, signal transduction pathways (e.g., p53, sirtuins, and PI-3K/AKT/mTOR, among others), and approaches to modulating these signaling pathways.

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