China Faces A Dollar Shortage!

One Way

You know market opinion has become lop-sided when there is a shortage of dollars.

Reuters: Over the past two months, Chinese banks have become eager to sell extra dollars to the central bank, fearing the US currency could fall in value, while their corporate clients are increasingly keen to borrow dollars to buy yuan, to speculate on yuan appreciation or for arbitrage.

With expectations of yuan strength unlikely to die down any time soon, Chinese dollar funding costs are set to keep rising in coming months and could climb prohibitively high, jeopardizing banks’ foreign exchange business as well as corporate dollar funding for purposes such as trade and investment, dealers said.

“There is an acute dollar shortage on the market,” said a dealer at a Chinese commercial bank in Shenzhen.

“The situation is likely to worsen in coming months as banks don’t want to retain dollars and some of their clients are borrowing dollars to conduct arbitrage trading.”

Read more here.

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