Global finance faces $9 trillion stress test as dollar soars – Contrary to popular belief, the world is today more dollarized than ever before. Foreigners have borrowed $9 trillion in US currency outside American jurisdiction, and therefore without the protection of a lender-of-last-resort able to issue unlimited dollars in extremis. This is up from $2 trillion in 2000.
Global dollar credit: links to US monetary policy and leverage – Prior to the crisis, global banks drew on low US dollar funding rates and easy leveraging to extend dollar credit to non-US borrowers. After the Federal Reserve announced its large-scale bond purchases in 2008, however, investors responded to compressed long-term US Treasury rates by buying higher yielding dollar bonds from non-US issuers. Thus, US unconventional monetary policy contributed to shifting the balance of dollar credit transmission from global banks to global bond investors.
The Strong Dollar Is Weighing On Major U.S. Exporters – Nearly one-third of business executives expect the value of the dollar to increase 10% relative to the euro, according to the survey. Among executives who expect at least 10% dollar appreciation, 13.8% said currency values will have a negative effect on capital spending plans, and 8.6% expect a negative effect on hiring plans. (The survey was conducted through March 6; the dollar has strengthened further since then.)
Strength Is Weakness – Actually, the strong dollar is bad for America. In an immediate sense, it will weaken our long-delayed economic recovery by widening the trade deficit. In a deeper sense, the message from the dollar’s surge is that we’re less insulated than many thought from problems overseas. In particular, you should think of the strong dollar/weak euro combination as the way Europe exports its troubles to the rest of the world, America very much included.
Renminbi internationalisation: the long march continues – Significantly, however, inclusion in the SDR basket would allow the renminbi to sidestep the convertibility criterion for a reserve currency. As Lubin notes, IMF rules state that “reserve assets must be denominated and settled in convertible foreign currencies…” Under that rule, central banks that currently hold renminbi cannot report them as part of their foreign reserves. But if the renminbi joined the SDR basket, it would automatically and by definition become a reserve currency – in all likelihood, Lubin reckons, precipitating a change in the IMF’s rules.
Tsipras Reaches Out to Euro Region Amid Spat With Germany -After a meeting in Brussels on Monday, euro-region finance ministers told Varoufakis to stop wasting time. German Finance Minister Wolfgang Schaeuble suggested his Greek counterpart’s understanding of the Feb. 20 agreement extending Greece’s bailout program wasn’t up to scratch. “He just has to read it,” Schaeuble told reporters. “I’m willing to lend him my copy if need be.”
US attacks UK’s ‘constant accommodation’ with China – Relations between Washington and David Cameron’s government have become strained, with senior US officials criticising Britain over falling defence spending, which could soon go below the Nato target of 2 per cent of gross domestic product. A senior US administration official told the Financial Times that the British decision was taken after “virtually no consultation with the US” and at a time when the G7 had been discussing how to approach the new bank.
Fun With Brad DeLong on TPP – Brad thinks he has a winner policy with TPP, taking issue with Paul Krugman who says the deal is not worth doing. Brad argues that even if the deal is worth half of the 0.5 percent of GDP figure that is widely cited, we are still talking about 0.25 percent of GDP, or $75 billion a year for the region as a whole and $45 billion for the U.S.