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The COVID-19 Pandemic Exposes Asian Banks’ Vulnerability to US Dollar Funding

Cyn-Young Park () and Peter Rosenkranz ()

Chapter 17 in Impact of COVID-19 on Asian Economies and Policy Responses, 2021, pp 123-130 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The COVID-19 pandemic has been unraveling global financial markets and testing Asia’s financial resilience at a time that Asian and global economic activity have slowed due to prolonged trade uncertainties. While it began as a health crisis, this pandemic could turn into an economic and financial crisis if not swiftly contained. Across the region, stock markets have crashed, currencies have tumbled, and short-term capital has taken flight, underscoring fragile market sentiments. Amid flight to safety, the demand for the US dollar has soared. While multiple factors (primarily driven by fear of a precipitous economic slowdown) are behind the surge in demand, it is a global rush to unwind carry trades that drove a rise in dollar funding costs in the interbank and foreign exchange swap markets (Figure 1)…

Keywords: COVID-19; Pandemic; Coronavirus; Lockdowns; Supply Shock; Demand Shock; Financial Distress; Global Value Chain; Global Supply Chains; Public Policy; International Trade; Debt; Post-COVID-19; Liquidity Crisis; International Trade; Policy Response; Policy Uncertainty; Public Health; Big Data; Pandemic Dilemma (search for similar items in EconPapers)
JEL-codes: F02 F4 H12 I15 I18 (search for similar items in EconPapers)
Date: 2021
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