Mehul Daya writes and I concur….
it’s simple: it’s all about Dollar-Liquidity. Slowdown in global trade is putting pressure on creation and velocity of Dollars via value-chains/Dollar-leverage since the Dollar is the lubricant of the global financial system.
See charts below in thread. Long USD
Chart 1 – this is how the dollar gets transmitted into the world
Chart 2 – global trade vs USD vs Triffin dilemma
BIS writes in ” The geography of dollar funding of non US banks”
- US dollar liabilities of non-US banks grew after the Great Financial Crisis (GFC). At end-June 2018, they stood at $12.8 trillion ($14.0 trillion including net off-balance sheet positions) – as large as at the peak of the GFC.
- Banks raise relatively fewer dollar liabilities in their affiliates in the US since the GFC. This is due to a rise in the share of dollar liabilities booked in the country where banks are headquartered.
- European banks, which traditionally have had a large US footprint, have shrunk their dollar business and the role of their US affiliates since the GFC. At the same time, non-European banks expanded their dollar borrowing quite rapidly, but in recent years have also raised relatively fewer dollars in the US.
- A large share of US dollar liabilities of non-US banks are cross-border (51% at end-June 2018), implying that the location where US dollar funding is raised is different from the location of the funding provider.
- The global share of US dollar funding provided by US residents is significantly higher than that raised at foreign banks’ US branches and subsidiaries, though these shares vary across banking systems.
The global trade is slowing down and cross border trade is the largest supplier of USD into the global economy and financial system and as BIS summaries….How might this funding configuration behave in times of market stress? Non-US creditors may be pressured to withdraw funding as they might face a dollar funding squeeze themselves. This in turn is akin to margin call on all assets which were beneficiary of dollar based monetary system.