Thursday, March 05, 2009
dollar strength to continue
European banks face a US dollar “funding gap” of almost $2 trillion as a result of aggressive expansion around the world and may have difficulties rolling over debts, according to a report by the Bank for International Settlements. ...
The report, entitled “US dollar shortage in global banking”, helps explain why there has been such a frantic scramble for dollars each time the credit crisis takes a turn for the worse. ...
The BIS said the total “funding gap” in dollars was around $2.2 trillion at the peak, when money market liabilities are included. This had fallen to around $2 trillion by the time of the Lehman Brothers collapse. The data is collected with a lag but it appears that there are still huge dollar liabilities to be covered.
Simon Derrick, currency chief at the Bank of New York Mellon, said the implications are obvious. “The global bullion of the last eight years was funded on dollar balance sheets, so the capital destruction we’re seeing leaves banks starved for dollars. Dollar is clearly going to appreciate a lot further,” he said.
* This article has been updated following reader queries over the complexity of the banks' "short" and "long" positions in dollars.
not new news but interesting to have a figure. the euro is being hit again today, though that has other proximate causes.
this remains important economically as well, as strength in the dollar will tend to force more of the contraction in global excess capacity onto american manufacturing, deepening the manufacturing depression in comparison to what might have been expected.