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Abstract
This paper investigates the impact of central bank swap lines during the 2020 pandemic using micro-level data. Using confidential transaction-level data from the Bank of England, we study how swap line drawings affect dealer pricing and exposures in foreign exchange (FX) forwards and swaps. We find that swap line usage reduces pricing inefficiencies and violations of covered interest parity in both interdealer and customer-dealer markets. Moreover, on average, dealers use swap lines to substitute for expensive synthetic dollar funding obtained through FX derivatives instead of engaging in arbitrage transactions to exploit deviations from covered interest parity.