Indicators of market functioning in commercial paper and other short-term funding markets improved substantially and rapid outflows from prime and tax-exempt money market funds stopped after the announcement and implementation of these facilities. In mid-March, offshore U.S. dollar funding markets also came under stress. In response, the Federal Reserve and several other central banks announced the expansion and enhancement of dollar liquidity swap lines.
First, by facilitating the identification of most productive use of economic resources, it constitutes the basis for assessment of prospective rewards and risks. Second, it acts as an enabling mechanism for control over the effective utilisation of resources. Taken together, this forms the basis of income allocation among various constituents and the exercise of financial discipline.