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Dollar funding costs during the Covid-19 crisis through the lens of the FX swap market

Summary:
BIS Bulletin  |  No 1  |  01 April 2020 by  Stefan Avdjiev, Egemen Eren and Patrick McGuire PDF full text (678kb)  |  8 pages Key takeaways Since the start of the Covid-19 pandemic, indicators of dollar funding costs in foreign exchangemarkets have risen sharply, reflecting both demand and supply factors. The demand for dollar funding has grown in recent years, reflecting the currency hedging needsof corporates and portfolio investors outside the United States. Against this backdrop, the financial turbulence of recent weeks has crimped

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BIS Bulletin  |  No 1  | 
01 April 2020
PDF full text
 (678kb)
 |  8 pages

Key takeaways

  • Since the start of the Covid-19 pandemic, indicators of dollar funding costs in foreign exchange
    markets have risen sharply, reflecting both demand and supply factors.
  • The demand for dollar funding has grown in recent years, reflecting the currency hedging needs
    of corporates and portfolio investors outside the United States.
  • Against this backdrop, the financial turbulence of recent weeks has crimped the supply of dollar
    funding from financial intermediaries, sharply lifting indicators of dollar funding costs.
  • These costs have narrowed after central banks deployed dollar swap lines, but broader policy
    challenges remain in ensuring that dollar funding markets remain resilient and that central
    bank liquidity is channelled beyond the banking system.
International Settlement
The Bank for International Settlements (BIS) is an international company limited by shares owned by central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work through subcommittees, the secretariats it hosts and through an annual general meeting of all member banks. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.

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