Offshore banks create dollar claims but cannot create dollar reserves. When offshore dollar funding stops rolling (September 2008, March 2020) the shortfall is of a liability only the Federal Reserve can issue, held by institutions the Federal Reserve does not bank. Two instruments bridge exactly that gap, and both are pure balance-sheet mechanics.
How do swap lines and the FIMA repo facility work?
Central-bank liquidity swaps. The Fed maintains standing dollar-liquidity swap arrangements with a small group of central banks (the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank) and has established temporary lines more widely in stress (Federal Reserve Board, Central Bank Liquidity Swaps). Mechanically: the Fed credits the foreign central bank's account with dollars and simultaneously receives that central bank's currency at the prevailing rate; at unwind the currencies are re-exchanged at the same rate as the initial leg, plus interest on the dollars. Read the consequences off the structure. Because the unwind rate is fixed at the original rate, the Fed takes no exchange-rate risk. Because its counterparty is a central bank, the Fed's credit exposure is to that central bank alone, the foreign central bank on-lends the dollars to its own banks under its own collateral and counterparty standards and bears that credit risk itself. Both balance sheets expand: the Fed books a swap asset against a new dollar deposit liability; the foreign central bank books a dollar asset against a domestic-currency liability to the Fed, then transforms it into dollar loans. Dollars reach a Frankfurt or Tokyo bank that has no Fed account.
The FIMA repo facility does the same job through a different door for a much wider set of counterparties. Foreign and international monetary authorities holding US Treasuries in custody at the Federal Reserve Bank of New York may repo them overnight for dollars rather than selling them outright into a stressed market. Established as temporary on 31 March 2020 and made standing in July 2021 (Federal Reserve Board, FIMA Repo Facility), its purpose is to give a central bank without a swap line an alternative to dumping Treasuries, the channel that turns a dollar shortage into a Treasury-market dislocation.
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Does India have a dollar swap line?
India's position matters. The Reserve Bank of India holds no standing dollar swap line with the Fed. Its dollar backstop is therefore (a) its own foreign-exchange reserves, (b) FIMA-repo eligibility against its Treasury holdings, and (c) its own domestic operations, notably RBI's USD/INR buy-sell and sell-buy swap auctions, which are simply the FX swap used as a monetary-policy tool. This is why the level of India's reserves is a genuine policy variable rather than a vanity metric: reserves are the country's substitute for a swap line. Read the level from the RBI's own Weekly Statistical Supplement, never a secondary source, and convert it into months of import cover before using it in any argument.