Waiting for trump: how the U.S. can lead to a shortage of dollars in the world

A strengthening dollar represents a systemic risk for developing countries, which scored dollar-denominated debt by $3.2 trillion, and for the international banks that lent the money. These debts have to refinance at a higher rate and, apparently, higher rates. If risks of default increase, banks will reduce lending, exacerbated the shortage of dollars, which is brewing, the report of the head of research Bank for international settlements Hyun song Shin (Hyun Song Shin), which he delivered at the London school of Economics November 15 (.pdf). “We are seeing signs of dollar scarcity,” said Hyun song Shin on the discussion of the report, quoted by The Telegraph.

The crisis may come if the dollar continues to rise, and this will contribute to the expected economic policy of the new U.S. President Donald trump. The Dollar index ICE Index (reflects the value of the dollar against a basket of six currencies) on Friday, November 18, grew up the tenth consecutive session, up to the beginning of 2003, its growth after the victory trump was already at 3.4%. Steady shortage of dollar funding in the global market — one of the possible consequences of a powerful new trend of “deglobalization,” which analyzed strategists at Deutsche Bank George Saravelos and Robin Winkler (their report on this subject dated November 16, have). The presidency of trump, in which American corporations can repatriate hundreds of billions of dollars of profits from abroad, will strengthen this trend, analysts expect Deutsche Bank.

Hyun song Shin of the Bank for international settlements claims that the earlier global barometer of appetite for debt capital (leverage) served as the VIX, known in the financial press as the “index of fear” (when VIX was at a low level of leverage in the system was high, and Vice versa), and now this indicator was the us dollar. The economist calls this “unexpected” result. When the dollar strengthens, the risk appetite is weakening, and the debt load is reduced. “If banks have a portfolio of dollar-denominated assets and some of these assets vulnerable to the appreciation of the dollar, the overall ability of the Bank to take the risk to be vulnerable to shocks,” he explains. If the volatility in the markets will soar, banks could respond by reducing its basic function of intermediation in the allocation of capital, as it was in the crisis of 2007-2009, “the banking sector can turn from absorber shocks in their amplifier,” in “from the strong dollar benefits no one,” says Hyun song Shin.

The arrival of trump to power marks the passage of the peak of globalization — a reversal of the neo-liberal world order established after the Second world war, according to Deutsche Bank. In financial markets, this will be reflected in the reduction in the availability of global dollar liquidity. Less stimulative fed policy of the United States, more stringent capital requirements for banks and financial companies worldwide, the growth of restrictions on free movement of capital in developing countries has affected the availability of dollars. Reduced the channel of providing liquidity via deposits placed by Central banks and sovereign funds in commercial banks (previously, Deutsche Bank estimated the volume of such deposits to $700 billion). In addition, in the face of growing protectionism and anti-globalization sentiment will be difficult to rely on the currency swap lines between the world’s Central banks played an important role after the financial crisis of 2008.

Finally, the administration trump can stimulate the return of $1-2 trillion in corporate profits, which are now, according to Deutsche Bank, are located outside the United States, in more favorable tax jurisdictions. Possible tax breaks for large companies or even the reform of the U.S. Tax code will negatively affect the dollar liquidity of European banks, which were reinvested over 50% derived overseas profits of American companies, argue analysts at Deutsche Bank.

Compression cross-border dollar lending as an inverse function of the appreciating dollar, warned the Bank for international settlements, makes developing economy with large amounts of dollar debt “increasingly vulnerable to the credit crisis,” writes Deutsche Bank. Many companies in emerging markets after the financial crisis of 2008 and thanks to the super soft policy of the fed preferred cheap borrowing in dollars, since they could be made for a longer period and at lower rates than in national currencies. According to S&P Global, dollar-denominated 66% of all debt of non-financial companies in Mexico, a third of the debts of Turkish companies and 52% of the debts of corporate borrowers in Indonesia. According to the Bank of Russia, in the middle of 2016 dollar-denominated external debt of Russian companies amounted to $231, and 2 billion — 66% in the currency structure of external debt.