Dollar Funding Stresses in China

17 Pages Posted: 25 May 2022 Last revised: 31 Oct 2022

See all articles by Laura Kodres

Laura Kodres

Golub Center for Finance and Policy

Leslie Sheng Shen

Federal Reserve Bank of Boston

Darrell Duffie

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER); Canadian Derivatives Institute

Date Written: May 3, 2022

Abstract

The need for US dollar funding during the financial stresses in mid-March 2020, as the COVID pandemic news shocked markets, was evident in a number of countries. Notably, however, China’s dollar liquidity needs received little attention. Given China’s deepening economic and financial linkages to the United States and rest of the world, financial instability there could have implications for the global economy. We provide a deeper understanding of the dollar funding needs of Chinese banks and non-financial corporations and show that China’s vulnerability to US dollar funding risk is large and growing. We further discuss the existing and potential avenues through which US dollar funding could be supplied to Chinese entities in times of stress.

Keywords: Dollar funding, China, Central Bank Liquidity Provision, Currency Markets

JEL Classification: E58, F31, F34, F42

Suggested Citation

Kodres, Laura and Shen, Leslie Sheng and Duffie, James Darrell, Dollar Funding Stresses in China (May 3, 2022). Stanford University Graduate School of Business Research Paper, Available at SSRN: https://ssrn.com/abstract=4099944 or http://dx.doi.org/10.2139/ssrn.4099944

Laura Kodres (Contact Author)

Golub Center for Finance and Policy ( email )

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Leslie Sheng Shen

Federal Reserve Bank of Boston ( email )

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HOME PAGE: http://www.lsshen.com

James Darrell Duffie

Stanford University - Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Canadian Derivatives Institute ( email )

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