Here's a reminder of how the U.S. dollar still has a stranglehold on the global economy.
The chart below is from Stephen Cecchetti of the Bank of International Settlements, via Alphaville. He classified international banks as either long certain currencies or short them, based on whether ot not they have net assets or liabilities in each currency.
Look closely at the long-dollar and short-dollar positions in red:
"I would like to focus your attention on the red line at the top of the graph’s left-hand panel. What this line means is that the banks – these are Canadian, Dutch, German, Swiss, UK and Japanese banks – require an estimated aggregate of $1.2 trillion (net) in US dollars. During the crisis, because of disruptions to these markets, these obligations ultimately could only be met through international FX swap arrangements among central banks. And, critically, over the last three years this number has not fallen! If you were wondering why the swap arrangements had to be reinstated on 9 May, now you know."
A useful reminder that the dollar shortage out there will be with us for a while.
Thus during the financial crisis there was huge demand for dollars, which had to be met by central banks since private financial players didn't trust each other. It's an example of why we shouldn't expect the dollar to lose its status as the world's primary currency any time soon. The chart above shows that net-long dollar exposure is higher than it's ever been.
Disclosure: No Positions