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This chart is telling you that Eurodollar lending by Japanese banks to China is as high as it’s going to get. This supports the theory that China has been intervening heavily selling TSYs to subsidize its banks access to USD and will have further selling to do to roll those swaps
China has no other source for dollars than FX swaps and sales of reserve assets for its closed loop currency system. The cuts in RRR to spur local banks to lend more is undercut by banks reluctance to lend and propensity to hoard
The dollar short in China is alive, well, and about to start kicking when Eurodollars become even more scarce in response to capital surcharge increases. This all makes sense in the context of the recent statements about selling USTs by PBOC officials—they don’t have a choice
This is how it works visually. There’s a huge hole in this picture if dealers pull back. Meanwhile China’s domestic monetary base is tied directly to the exchange rate with the dollar and their availability to domestic banks via the Eurodollar market
If China has truly maxed out available FX swap funding, that represents a major threat to any recovery happening worldwide. When businesses can’t get $ for inventory, resources, and to finance trade, global commerce shrinks.
Add another dimension to the squeeze, the Yen is strengthening vs USD. Another symptom of Repo liquidity stress and something to watch going forward. In short, nothing good happens when the Yen starts strengthening vs the $ https://alhambrapartners.com/2020/09/08/bottleneck-in-japanese/
The Eurodollar funding superhighway into China that is Japanese banks couldn’t get more congested. Beneath the smoothed, steady balance of USTs held by the PBOC is another currency crisis a la Brazil, just waiting to happen. Same playbook, bigger player https://alhambrapartners.com/2020/09/11/the-contingent-hole-in-chinas-brazil-dollar-strategy/
Listen to me you dumb rat fuck...Better yet, take a screen shot and cram it up your ass
@bauhiniacapital
I’m not questioning the soundness of Japanese banks
CHINA is short of US dollars.
They are hiding this fact
GSIBs are pulling back on intermediation.
Snider is right.
@bauhiniacapital
I’m not questioning the soundness of Japanese banks
CHINA is short of US dollars.
They are hiding this fact
GSIBs are pulling back on intermediation.
Snider is right.
