The big story on Monday is the warning from the BIS that a resurgent dollar could disrupt EM markets due to the fact that collectively the region has three quarters of its $2.6tn debt denominated in the US currency.
Meanwhile, international banks’ cross-border loans to emerging market economies amounted to $3.1tn in mid-2014, mainly in US dollars, the BIS added.
And herein lies the key problem associated with the hypothetical eventuality of no more petrodollars. A major dollar squeeze in foreign eurodollar markets.
Not that the petrodollar is near its death just yet — the US after all is nowhere near energy independent. Read more
Residents of emerging markets owe hundreds of billions more dollars (and euros) than previously thought, because they have sold bonds offshore that don’t get counted in national statistics. An IMF study released at the beginning of the year measured the size of the discrepancy:
We’ve written a lot about capital outflows from China, what Beijing is doing to try to stem the flows, and how all this impacts the renminbi. Most of the time, the talk is about billions of dollars whizzing around the financial markets, one way or other. Yet, it seems that China’s capital outflow is accelerating even in its simplest form — yes, we mean bundles of cash hidden in suitcases.
It’s seriously old school, and seems almost quaint, but the sums are sizeable. Read more
Almost everywhere, the fall of the Iranian rial is being interpreted as a huge problem for the incumbent Iranian regime — one that could bitterly undermine economic stability in the country.
Ehad Mostaque of Religare Capital Markets, however, posits a different view. Read more
From Bloomberg on Monday (citing Morgan Stanley research):
Morgan Stanley says the potential scarcity of dollars among foreign private borrowers represents the U.S.’s net position with lenders abroad of minus $2.4 trillion, adding $4.8 trillion of U.S. financial assets held by central banks, and subtracting $500 billion of foreign official assets held by the U.S. Read more
From ‘who is it?’ to ‘who are they?’ and ‘how much?‘
After a period of sending a piffling $60m a week to one European bank at its regular dollar tenders, the European Central Bank has now provided $560m to two institutions: Read more
BIS academic Stephen Cecchetti has been much exercised by the currency costs of international financial integration lately — quantifying the yen carry trade.
And now he’s taken another look at dollar shortages. Read more