Central Bank Swap Lines: Micro-Level Evidence

In this paper we investigate the price, volatility and micro-level effects of central bank swap lines during the 2020 pandemic. Following swap line auctions, these interventions reduced the level and volatility of covered interest rate parity violations. We combine dealer-level dollar auctions by the Bank of England with FX derivative transactions. Dealers that used the swap line engaged in more favorable pricing of forward contracts, reduced their gross FX exposures, and increased their net supply of dollars to nonfinancial institutions. Taken together, our results support the rationale for swap lines in reducing mis-pricing in FX markets and providing cross-border liquidity.