If a hegemon is a single nation above other nations empowered to make the rules of the game, what do you call an institution that is supposedly politically independent yet part of the United States government that does the same thing? The answer is the Federal Reserve. In most democracies when the pandemic began, the government did not have the ability to halt the rapidly deteriorating economic situation. A vacuum of leadership developed in the United States. The central bank quietly stepped in to fill the void.
The power of the Federal Reserve is based first on its credibility, which partly derives from its independence. While it reports to Congress, it does not rely on the legislative branch for funding, and it earns money through transactions. The president, with the consent of the Senate, appoints its chairman. The term does not coincide with the president. The central bank cannot be involved overseas or have offices outside the United States. Its primary responsibility as mandated by Congress is the dual mandate to protect the stability of the dollar and to maximize employment with monetary policy.
Neither of those have anything to do with supporting the economies of other countries during a crisis. But you can stretch the mandate to imply that in a world where a crisis as devastating as the coronavirus occurs, supporting other economies is protecting the stability of the dollar and helping to maintain employment in the United States. This is exactly what the Federal Reserve is doing by assuming international responsibility and moving into a void where no other institution exists.
The Federal Reserve started making dollars available to other countries. Since the majority of world trade is done in dollars, it was essential for the Federal Reserve to make dollars easily available. It received foreign currencies in exchange and charged interest on these transactions. It has also cut the rate it charges on those interactions with the central banks in numerous countries and extended their maturity. This program was used during the Great Recession, but it was nowhere near this level.
The Federal Reserve went beyond its mandate at home, acting while the administration dithered. As Chairman Jerome Powell said about preventing the economy from going into free fall, “When it comes to lending, we are not going to run out of ammunition.” Over two months, the Federal Reserve sent more than $2 trillion into the domestic economy, twice the amount it injected after the collapse of Lehman Brothers.
It is as if the mandate of maintaining full employment now gives the Federal Reserve the power to take any monetary action conceivable to fill the power vacuum left by the inability of Congress and the administration to act. One example of this involves the Metropolitan Transportation Authority of New York. Its financial situation declined as the coronavirus caused ridership to drop near zero. A bill was introduced in Congress to help states fund such problems, but it became a political football with the Senate majority leader refusing to support it. While Congress was bitterly fighting over the bill, the Federal Reserve announced that it would allow states to designate that their mass transit systems could raise funds by selling debt to the central bank.