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

In: Impact of COVID-19 on Asian Economies and Policy Responses

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  • Cyn-Young Park
  • Peter Rosenkranz

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)…

Suggested Citation

  • Cyn-Young Park & Peter Rosenkranz, 2021. "The COVID-19 Pandemic Exposes Asian Banks’ Vulnerability to US Dollar Funding," World Scientific Book Chapters, in: Sumit Agarwal & Zhiguo He & Bernard Yeung (ed.), Impact of COVID-19 on Asian Economies and Policy Responses, chapter 17, pages 123-130, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811229381_0017
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    More about this item

    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;
    All these keywords.

    JEL classification:

    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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