Dollar Funding Stresses in China

October 23, 2022 | by Laura E. Kodres, Leslie Sheng Shen, and Darrell Duffie

Abstract

The need for US dollar funding during the financial stresses in mid-March 2020, as the COVID pandemic news shocked markets, was evident in a number of countries. Notably, however, China’s dollar liquidity needs received little attention. Given China’s significant economic and financial
linkages to the United States and the rest of the world, financial instability there could have implications for the global economy. Hence, it is useful to develop a deeper understanding of the dollar liquidity needs of Chinese banks and non-financial corporations and to probe whether existing avenues of dollar funding for banks and other firms in China are sufficient in times of stress. This is our objective.

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