<p>A bilateral currency swap line allows two central banks to immediately swap currencies directly between each other up to a specified amount. The swap allows Central Bank A to immediately buy Central Bank B's currency at the official exchange rate. The currency never leaves each Central Bank; it is just reassigned to a new owner. </p>

<p>Crucially, the two banks also agree that Central Bank A has to buy back its currency at the same rate plus interest at a specified future date. Central Bank B never assumes any risk for Central Bank A's newly purchased reserves and is no party to any agreements which make use of the funds.</p>

CC BY-SA 3.0
2016-11-07T14:38:55.257Z
2016-11-07T14:38:55.257Z
cigikath
<p>Please explain in simple terms. How exactly does it function?</p>

<currency><international-economics><federal-reserve>
What is a bilateral currency swap line?
hkk
# What is a bilateral currency swap line?

(Asked by: username_0 on 2016-11-06)

Please explain in simple terms. How exactly does it function?

**Tags:** currency, international-economics, federal-reserve

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## 1 answers

### Answer by username_1 on 2016-11-07. Score: 1

A bilateral currency swap line allows two central banks to immediately swap currencies directly between each other up to a specified amount. The swap allows Central Bank A to immediately buy Central Bank B's currency at the official exchange rate. The currency never leaves each Central Bank; it is just reassigned to a new owner.

Crucially, the two banks also agree that Central Bank A has to buy back its currency at the same rate plus interest at a specified future date. Central Bank B never assumes any risk for Central Bank A's newly purchased reserves and is no party to any agreements which make use of the funds.


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