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"Currency market intervention accomplishes little on its own. Unless a change in monetary or fiscal policy follows, its effects fade within weeks. That is one reason the United States intervenes so rarely. Intervention is effective only when it signals a policy change to come."

"Even so, on July 31 the Treasury bought yen alongside Japan's Ministry of Finance. It was the first joint purchase of yen by the two governments since 1998. Two days later, Treasury Secretary Scott Bessent posted on X that the Fed should raise the $60 billion per-counterparty limit on its FIMA repo facility. He wrote that the limit should “be upsized in the coming months.” Shortly thereafter, Japanese authorities announced that they planned to draw on the facility to fund future intervention."

"The request raises a serious question about central bank independence. Should the size of the Fed's balance sheet respond to a foreign government's exchange rate objective, at the request of the U.S. Treasury Secretary? We think it should not."

"In this post, we describe how a FIMA loan works, explain its impact on the Fed’s balance sheet and compare it to alternative mechanisms for funding currency intervention. Our main message is that raising the cap hands short-term control of the Fed's balance sheet to a foreign government, and it would do so in the least visible way available."

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Money, Banking, and Financial Markets