Federal Reserve: Is the Federal Reserve exposed to ...risk in extending these [swap] lines?

"No.

Dollars provided through the reciprocal currency swaps
are provided by the Federal Reserve to foreign central banks,
not to the institutions obtaining the funding in these operations.

If a foreign central bank lends out money

the Fed created to swap

and an institution can't pay back the foreign central bank

the borrowed money,

how can currency debasement risk not exist?

The foreign central bank receiving dollars
determines the terms on which it will lend dollars onward...
...and what types of collateral they may borrow against.

If a foreign central bank lends out money

the Fed created to swap

and an institution's collateral ends up being worth less

and can't pay back the foreign central bank the borrowed money,

how can currency depreciation risk not exist?

...As the Federal Reserve's contractual relationship
is exclusively with the foreign central bank
and not with the institutions obtaining dollar funding...
the Federal Reserve does not assume the credit risk
associated with lending ...based in these foreign jurisdictions.

If the "Federal Reserve's contractual relationship

is exclusively with the foreign central bank"

and a foreign central bank lends out money the Fed created to swap

and an institution can't pay back the foreign central bank

how can currency debasement risk not exist?

The provision of dollars and receipt of foreign currency,
and the receipt of dollars and return of foreign currency
at the swap’s maturity date,
both occur at the same foreign exchange rate
so that the Federal Reserve is not exposed
to movements in foreign exchange rates."

If the exchange rate is the same

and the foreign central bank prints money

to repay the Federal Reserve,

how is the money not worth less on arrival?

http://www.federalreserve.gov/monetarypolicy/bst_swapfaqs.htm

...any time a foreign central bank

engages in a swap with the Federal Reserve,

the Fed will create new money in order to make the swap...

Some observers will therefore say

that the swap line is a backdoor way to engage

in more quantitative easing.

Tony Crescenzi

...Critics says such policies cheapen the dollar
and threaten to push up inflation rates.


...Many analysts agree the rate cut on swap lines
gives policymakers some wiggle room
but doesn't fix the problem.


Reducing funding costs
and making more liquidity available is helpful.


But the solvency issue remains.


Richard Batty