Read the article below and then follow instructions below

Instructions:

• Write one short 7-line paragraph SUMMARY of the article

• Then a second 7-line paragraph describing the lecture topic the article relates to

• And in the second paragraph state lessons learned

THE FED IS SETTLING INTO ITS ROLE AS THE WORLDS CENTRAL BANK

Allowing foreign central banks to access its repo facilities is effectively cost-free, benefits American lenders and borrowers, and cements the dollars dominance

They must lend to merchants, to minor bankers, to this man and that man, whenever the security is good. In wild periods of alarm, one failure makes many, and the best way to prevent the derivative failures is to arrest the primary failure which causes them, said British journalist Walter Bagehot in 1873, illustrating how central banks should behave during periods of financial panic.

Late on Tuesday, the Federal Reserve, which didnt exist at the time of Bagehots magnum opus, came a step closer to the this man and that man part of the equation. The Fed will allow foreign central banks to use their U.S. government bonds as collateral for short-term dollar borrowing, under its new repo facility. The scheme begins April 6 and is scheduled to last six months.

The new facility allows for countries with large dollar reserves in the form of Treasurys to more easily channel cash to dollar-squeezed domestic financial institutions, as Brad Setser of the Council on Foreign Relations noted when he proposed that the Fed adopt the tool.

But the announcement is momentous because it makes the Feds unstated role as global lender of last resort increasingly official. With its account at the New York Federal Reserve, even the Peoples Bank of China could meet the criteria for the new facility if approved by the Fed. And the knowledge that the facility is likely to reappear in moments of high stressas the temporary dollar-swap arrangements didwill make Treasurys even more attractive as a reserve asset than they already are.

Its also good news for the U.S. on a solely self-interested basis. Overseas Treasury holders are now less likely to begin firesales of other dollar-denominated assets like corporate bonds when dollar funding gets tight. It is a functionally costless way to prevent worse outcomes for American financiers, businesses and, ultimately, the country as a whole.

Market action over the past month demonstrates that the threat to the dollars role from other currencies has been hyped. The worlds central banks arent scrambling for Chinese yuan. Despite the risk-free nature of Japanese, German and British government bonds, cross-currency basis swaps are pricing a significant premium for dollars.

As with many crisis-era measures, dont expect this facility to ever fully disappear. It may be dormant during more stable times, but such tools are more often put away than retired forever. In future moments of acute stress, the Fed will return to the role of international lender of last resort with increasing comfort and confidence.