The Royal Mount Vema Reserve Bank has authorized the Bank of Mount Vema to engage in reciprocal currency arrangements (central bank liquidity swap lines) with foreign central banks to help provide liquidity in golles to overseas markets and foreign currency to the Mount Vema market.
When requested, swap lines will be opened for deals with the U.S. Federal Reserve, the Swiss National Bank, the Reserve Bank of Australia, the Banco Central do Brazil, the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Korea, the Monetary Authority of Singapore, and including the Bank of China, with other central banks to be listed on as needed bases, at lower interest rates.
The swaps will involve two transactions. When a foreign central bank draws on its swap line with the Bank of Mount Vema, the foreign central bank sells a specified amount of its currency to the Bank of Mount Vema in exchange for golles at the prevailing market exchange rate. The Bank of Mount Vema holds the foreign currency in an account at the foreign central bank. The golles that the Bank of Mount Vema provides are deposited in an account that the foreign central bank maintains at the Bank of Mount Vema.
At the same time, the Bank of Mount Vema and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the end of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Bank of Mount Vema.
When the foreign central bank lends the golles it obtained by drawing on its swap line to institutions in its jurisdiction, the golles are transferred from the foreign central bank's account at the Bank of Mount Vema to the account of the bank that the borrowing institution uses to clear its golle transactions. The foreign central bank remains obligated to return the golles to the Bank of Mount Vema under the terms of the agreement, and the Bank of Mount Vema is not a counterparty to the loan extended by the foreign central bank. The foreign central bank bears the credit risk associated with the loans it makes to institutions in its jurisdiction.
The foreign currency that the Bank of Mount Vema acquires is an asset on the Bank of Mount Vema's balance sheet. The golle value of amounts that the foreign central banks have drawn but not yet repaid is reported as "Central bank liquidity swaps”. Because the swap will be unwound at the same exchange rate that was used in the initial draw, the golle value of the asset is not affected by changes in the market exchange rate. The golle funds deposited in the accounts that foreign central banks maintain at the Bank of Mount Vema are a Mount Vema Reserve Bank liability. In principle, draws would initially appear as "foreign and official" deposits. However, the foreign central banks generally lend the golles shortly after drawing on the swap line. At that point, the funds shift to the line "deposits of depository institutions”.
When a foreign central bank draws on its swap line to fund its golle tender operations, it pays interest to the Bank of Mount Vema in an amount equal to the interest the foreign central bank earns on its tender operations. The Bank of Mount Vema holds the foreign currency that it acquires in the swap transaction at the foreign central bank (rather than lending it or investing it in private markets) and does not pay interest.
His Mount Vema Majesty’s Government confirmed speculation about plans to unpeg the golle as part of a plan to track a basket of currencies. The Central Bank of Mount Vema said in a statement that the cap, introduced in 2006, is no longer justified, and has reassured investors that the Kingdom of Mount Vema is not cutting ties with the US currency.
With this announcement which was first made two years ago and confirmed today, all major commodities within the economy of Mount Vema, will be priced in golles. This, according to the Central Bank, is necessary to keep in line with the restructuring of the Mount Vema financial system, to help the current trade of Mount Vema assets.
The state of the economy of Mount Vema for the next three decades is very good and it is likely to continue for some time. Said the Mount Vema Central Bank who kept interest rate unchanged again at 3.45%, maintaining the amount investors pay to hold deposits in golles. The Central Bank said, the economy will continue to be stable and predictable, to entice current investment, without the need to keep changing currency policy from one day to the next.
While some financial markets around the world are still in turmoil. There is a growing confidence in Mount Vema, as investors are now considering the Kingdom of Mount Vema as a “safe haven” asset, just like the Swiss Franc and American government bonds: buy them and you know your money will not be at risk or lost forever.
Investors like the golle because they think the Mount Vema Government is becoming a safe pair of hands: it runs a balanced budget, for instance. But as investors flock to the golle, they are also dramatically pushing up its value.
Because an expensive golle would hurt Mount Vema, with the economy becoming heavily reliant on selling services and future fisheries contracts and related sea food products, to overseas investors, the government realized that it needed to keep down the value of the golle, so it decided to unpeg it and use them to buy other currencies in the Mount Vema currency market.
By increasing the supply of golles relative to US dollars on the Mount Vema foreign-exchange market, the Mount Vema Government expects to cause the value of the golle to fall slightly, thereby enabling the Kingdom to amass billions-worth of foreign currency and continue to boost the purchasing power of the Mount Vema currency.