Reciprocal Currency Arrangement


DEFINITION of 'Reciprocal Currency Arrangement'

Temporary arrangement between central banks to maintain a supply of a country's currency for trade with other central banks at a specified exchange rate. A reciprocal currency arrangement is only intended for overnight or short-term lending in order to maintain reserve requirements, liquidity and to keep financial markets functioning smoothly.

Also known as a swap line or swap network.

BREAKING DOWN 'Reciprocal Currency Arrangement'

Reciprocal currency arrangements exist to provide short-term access to foreign currencies. In the U.S., for example, a reciprocal currency arrangement entails both a spot (immediate delivery) transaction, where the Federal Reserve transfers dollars to a central bank and receives foreign currency in exchange; and a concurrent forward (future delivery) transaction, where the two central banks consent to reversing the spot transaction at a specified date. One purpose of a reciprocal currency arrangement is the support of a country's currency during periods of uncertainty or unusual market disruptions.

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  2. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  3. Reciprocal Currency

    In the foreign exchange market, a currency pair that involves ...
  4. Swap Network

    A worldwide network of central banks that establish a reciprocal ...
  5. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
  6. Central Bank

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