Ambrose Evans-Pritchard: Global finance faces $9 trillion stress test as dollar soars

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By Ambrose Evans-Pritchard
The Telegraph, London
Friday, March 13, 2015

Sitting on the desks of central bank governors and regulators across the world is a scholarly report that spells out the vertiginous scale of global debt in US dollars, and gently hints at the horrors in store as the US Federal Reserve turns off the liquidity spigot.

This dry paper is the talk of the hedge fund village in Mayfair and the stuff of nightmares for those in Singapore or Hong Kong already caught on the wrong side of the biggest currency margin call in financial history. "Everybody is reading it," said one ex-veteran from the New York Fed.

The report -- "Global dollar credit: links to US monetary policy and leverage" --

http://www.bis.org/publ/work483.pdf

-- was published by the Bank for International Settlements in January, but its biting relevance is growing by the day.

It shows how the Fed's zero rates and quantitative easing flooded the emerging world with dollar liquidity in the boom years, overwhelming all defences.

This abundance enticed Asian and Latin American companies to borrow like never before in dollars -- at real rates near 1 percent -- storing up a reckoning for the day when the US monetary cycle should turn, as it is now doing with a vengeance.

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. ...

... For the remainder of the report:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/114654...



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