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There is, unfortunately, quite a lot wrong here (not just the topic...but obvious stuff like Triffin Dilemma). But the key points are basically two-fold. One,

There is, unfortunately, quite a lot wrong here (not just the topic...but obvious stuff like Triffin Dilemma). But the key points are basically two-fold. One, there isn't a shortage of dollars. Nowhere close to one. The Fed learned from what happened to Europe last time, and has already announced swap lines. Two, there isn't one generic "dollar" funding situation. In 2008, it was really about Europe. Now, we have lots of countries each with their own situation (which the Fed is watching closely). Japan has probably been where most of the growth in the market has come from. They are deep into CLOs but have a fairly neutral funding position (they borrow/lend in USD), and Japan has a huge stock of dollars...so a crisis seems unlikely. Canada is another big one but, again, this is US branches of Canadian banks...not an imbalanced position. The big mystery is China, which seems to be getting dollars from nowhere, but like Japan they have a huge stock of dollar reserves. The situation with EM is also not that simple. A lot have a huge stocks of dollars. The reason why some are getting into trouble is: bad monetary policy, borrowers with bad credit, and (lesser extent) dollar strength. The last is going to continue but Turkey, as an example, has been in this position for years (I noticed their issues 6 or 7 years ago). What is happening now changes nothing. Definitely, we have seen surprising moves in GBP and CAD which suggested that people were looking for dollars quickly but JPY rallied...so...who knows? I don't think it is something to be unduly worried about. The US has supplied tons of dollars, China and Russia will keep kicking up a shit fit about this but the US isn't taking advantage of the situation, the Fed is providing the market with liquidity. We have SDRs, there was no issue with the supply of dollars before this point (in fact, the issue was there was too much)...so...I don't see what there is to worry about here.

selectodude 7y ago
China is getting dollars from foreign purchasers of their goods paired with a forced exchange to yuan (holding large values of usd In China is illegal).
- toohotatopic 7y ago
  How are those dollars tracked? If somebody wires dollars to a Chinese bank, and that bank wires those dollars to another bank to exchange them, why can't that second bank make up any number when it wires dollars back to an American bank? Is it because at any time, those dollars were not only on the books of the Chinese banks but also on the books of some international clearance bank?
  - goodcanadian 7y ago
    Ultimately, unless they are holding physical currency (undoubtedly, they have some), the dollars are held in an account at a correspondent bank in the US and ultimately at a federal reserve bank. If China tries to spend money they don't have, someone in the chain is going to reject the transaction.
    - s1artibartfast 7y ago
      I never thought of this and find it an interesting. Are you saying that the primary counterfeit tracking of digital dollars is a distributed ledger where each bank knows where they got money and where they sent it? Do banks share these ledgers with each other or the fed?
      - goodcanadian 7y ago
        Sort of . . . I think it helps to go back and think of money as a physical object. I have some cash which I deposit at a bank. The bank holds the cash in a vault and gives me a statement telling me what I have. If I want to pay someone using the same bank as me, the bank can simply debit my account and credit the payee. The cash just stays sitting in the vault. Now, I tell the bank that I want to pay someone at another bank using a wire instruction. My bank debits my account and tells the payee's bank to credit his account. However, my bank now has too much cash in the vault and the payee's bank, not enough. To settle the transaction, my bank must physically transfer the cash to the recipient's bank. The banks have large numbers of customers and handle large numbers of transactions, so they can net it all out and only transfer the difference. Still, the banks don't really want to be transferring large amounts of physical currency everyday, so they deposit some of their currency with the federal reserve (think of it like the bank's bank). Then, instead of transferring physical cash, they can tell the federal reserve to transfer the money from one bank's account to another while the physical cash sits in the vault at the Fed (or more likely doesn't exist at all because the Fed is the source of truth). This can all get several levels deep. If I wire money to a supplier in China, the Chinese bank receiving the money doesn't want to transport cash across the Pacific, so almost certainly, they have an account at a "correspondent" bank in the US which, in turn, holds an account at the federal reserve. Meanwhile, in order to facilitate foreign currency exchanges, the US bank likely also has an account at a correspondent Chinese bank . . . and I can't say anything about how the Chinese banking system works, but I'm sure it is analogous.
- hogFeast 7y ago
  They aren't. As you say, you are unable to hold large USD balances in China. Whenever an exporter's account is credited with USD, the Chinese bank will take that convert into RMB, take those dollars to the PBOC who will then give them a PBOC note. There is obviously some kind of leakage occurring. Again, no-one where that is coming from because the PBOC is still holding $3tn.
yasp 7y ago
According to the article, it was published on February 26 (although archive.org didn't index it until just the other day). The Fed didn't announce new swap lines until three weeks later [0]. This is my first time learning of the Triffin Dilemma, so I'd be interested for you to comment on what about it is "obviously" incorrect. Wikipedia suggests this isn't a controversial notion. [0] https://www.reuters.com/article/us-health-coronavirus-fed-swaps-idUSKBN2162AX https://www.reuters.com/article/us-health-coronavirus-fed-sw...
- hogFeast 7y ago
  ...I didn't say it was controversial. The issue is that the Triffin Dilemma really only applied pre-Bretton Woods. It has been vogue again because of China and Europe bleating about people using the dollar but the reality is that central banks are very happy to hold gold, and dollars have been in ample supply. That is it. There are technical issues with Triffin too but the most important point is that doesn't represent reality today. I am not going into the history of this but one thing that economists today assume is that Bretton Woods broke up because of the Triffin Dilemma/lack of gold...this isn't wholly accurate and Triffin expected that BW ending would cause deflation...it didn't, it caused massive inflation.

selectodude 7y ago

China is getting dollars from foreign purchasers of their goods paired with a forced exchange to yuan (holding large values of usd In China is illegal).

toohotatopic 7y ago
How are those dollars tracked? If somebody wires dollars to a Chinese bank, and that bank wires those dollars to another bank to exchange them, why can't that second bank make up any number when it wires dollars back to an American bank? Is it because at any time, those dollars were not only on the books of the Chinese banks but also on the books of some international clearance bank?
- goodcanadian 7y ago
  Ultimately, unless they are holding physical currency (undoubtedly, they have some), the dollars are held in an account at a correspondent bank in the US and ultimately at a federal reserve bank. If China tries to spend money they don't have, someone in the chain is going to reject the transaction.
  - s1artibartfast 7y ago
    I never thought of this and find it an interesting. Are you saying that the primary counterfeit tracking of digital dollars is a distributed ledger where each bank knows where they got money and where they sent it? Do banks share these ledgers with each other or the fed?
    - goodcanadian 7y ago
      Sort of . . . I think it helps to go back and think of money as a physical object. I have some cash which I deposit at a bank. The bank holds the cash in a vault and gives me a statement telling me what I have. If I want to pay someone using the same bank as me, the bank can simply debit my account and credit the payee. The cash just stays sitting in the vault. Now, I tell the bank that I want to pay someone at another bank using a wire instruction. My bank debits my account and tells the payee's bank to credit his account. However, my bank now has too much cash in the vault and the payee's bank, not enough. To settle the transaction, my bank must physically transfer the cash to the recipient's bank. The banks have large numbers of customers and handle large numbers of transactions, so they can net it all out and only transfer the difference. Still, the banks don't really want to be transferring large amounts of physical currency everyday, so they deposit some of their currency with the federal reserve (think of it like the bank's bank). Then, instead of transferring physical cash, they can tell the federal reserve to transfer the money from one bank's account to another while the physical cash sits in the vault at the Fed (or more likely doesn't exist at all because the Fed is the source of truth). This can all get several levels deep. If I wire money to a supplier in China, the Chinese bank receiving the money doesn't want to transport cash across the Pacific, so almost certainly, they have an account at a "correspondent" bank in the US which, in turn, holds an account at the federal reserve. Meanwhile, in order to facilitate foreign currency exchanges, the US bank likely also has an account at a correspondent Chinese bank . . . and I can't say anything about how the Chinese banking system works, but I'm sure it is analogous.
hogFeast 7y ago
They aren't. As you say, you are unable to hold large USD balances in China. Whenever an exporter's account is credited with USD, the Chinese bank will take that convert into RMB, take those dollars to the PBOC who will then give them a PBOC note. There is obviously some kind of leakage occurring. Again, no-one where that is coming from because the PBOC is still holding $3tn.

yasp 7y ago

According to the article, it was published on February 26 (although archive.org didn't index it until just the other day). The Fed didn't announce new swap lines until three weeks later [0]. This is my first time learning of the Triffin Dilemma, so I'd be interested for you to comment on what about it is "obviously" incorrect. Wikipedia suggests this isn't a controversial notion. [0] https://www.reuters.com/article/us-health-coronavirus-fed-swaps-idUSKBN2162AX https://www.reuters.com/article/us-health-coronavirus-fed-sw...

hogFeast 7y ago
...I didn't say it was controversial. The issue is that the Triffin Dilemma really only applied pre-Bretton Woods. It has been vogue again because of China and Europe bleating about people using the dollar but the reality is that central banks are very happy to hold gold, and dollars have been in ample supply. That is it. There are technical issues with Triffin too but the most important point is that doesn't represent reality today. I am not going into the history of this but one thing that economists today assume is that Bretton Woods broke up because of the Triffin Dilemma/lack of gold...this isn't wholly accurate and Triffin expected that BW ending would cause deflation...it didn't, it caused massive inflation.