At the end of September the Repo rate (repurchase agreement) has been making the headlines again. The General Repo rate overnight rose on the weekend to about 1 percent, from 1.85% on Friday to 2.8% on Monday. The Fed now has to invest billions in order to keep the market under control.
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What is the Repo market?
The Fiat currency market is once again proving its instability, after the repo rate discrepancies with the interest rate of the Fed shows. The Repo market is the place where the big banks borrow overnight money in exchange for low-risk collateral such as securities. Of particular note is that these operations are short term and the banks are daily liquid. In General, the Bank has taken monies out there, the money back the next day, at a rate called Repo rate.
Although the Repo market, however, with low-risk securities, were reluctant banks to forgive anyway loans, which leads to a shortage of Liquidity and the Repo rate above the Fed rate increased.
Why are the banks not willing to lend you money? Now, it could be observed that the banks are on the verge of their regulatory reporting deadlines, or even because they regard securities as risk-free collateral. Thus, the entire bond market and thus the financial system could destabilize.
The FED comes to the rescue
The Fed has carried out since the beginning of September, special operations for the injection of Liquidity in the Repo market. For the first Time since the financial crisis in 2008, which shows how serious the Problem is.
It seems, in fact, as the FIAT industry would lose their credibility, which could help the crypto-market. The Fed is forced to print money out of Nothing, in order to achieve the interest rate target. As already mentioned, has not increased the Repo rate on the weekend again, so the Problem comes to rest.
Actually, the Situation is so tricky, that the US Central Bank could make this an “exceptional” amount of money to a permanent solution. John Williams, head of the New York Fed (the most important branch of the Fed), said the New York Times that the Central Bank could implement an ongoing facility for the Repo market.
“We do not see that the liquidity moves into these situations so easily, which means that we need to make sure if we want that the interest rates stay in a narrow range for stand alone, that we have this amount of reserves in order to support that,” he said.
The crypto Community is shocked about the amount of money that the Fed has so far injected.
I’ve lost count of how much money the NY Federal Reserve has injected into the financial system over the last two weeks.
Pomp ? (@APompliano) 30. September 2019
During any instability in the financial market for the crypto-acceptance, could result in an increase in USD liquidity to a short-term decline in the prices of Bitcoin and Altcoins, but in the long term, this action promotes the Status of Bitcoin as a Safe-Haven investment.
Text evidence: bitcoinis