Dollar Funding Stresses in China

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See all articles by Laura Kodres

Laura Kodres

Golub Center for Finance and Policy

Leslie Sheng Shen

Board of Governors of the Federal Reserve System

Darrell Duffie

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

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). Available at SSRN: https://ssrn.com/abstract=

Laura Kodres (Contact Author)

Golub Center for Finance and Policy ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Leslie Sheng Shen

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

James Darrell Duffie

Stanford University - Graduate School of Business ( email )

655 Knight Way
Knight Management Center
Stanford, CA 94305-7298
United States
650-723-1976 (Phone)
650-725-8916 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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