COVID-19-Induced Dollar Shortage Slightly Eased... Decline in Currency Swap Bid Rates with the US Among Countries

[Asia Economy Reporter Kim Eunbyeol] As the U.S. Federal Reserve (Fed) continues to inject liquidity, stabilizing the global market, signs of the 'dollar drought' easing are emerging.

According to the International Finance Center on the 11th, as of the settlement balance on the 8th, 11 central banks worldwide have procured and supplied a total of $365.8 billion (approximately 443.5 trillion KRW) in dollar funds to the market through currency swaps with the U.S.

The International Finance Center explained, "Since April, the rollover rate has decreased and cases of non-bidding have occurred, indicating that the shortage of dollar liquidity is coming to an end. The improvement in swap indicators among countries and the slowdown in the growth of dollar currency swap fund supply to the U.S. further confirm that concerns over global dollar liquidity have eased."

In South Korea's case, following the second foreign currency loan competitive bidding using currency swap funds on the 7th, $4.415 billion, about half of the $8.5 billion supply amount, was bid. During the first supply of the Korea-U.S. currency swap funds, although the supply limit was $12 billion, the actual bid amount was $8.72 billion.

A Bank of Korea official stated, "It appears that the bid volume fell short of the supply amount because the banks' funding conditions are not very poor."

Other countries show similar patterns. Singapore supplied a total of $4.7 billion with a low bid rate from the start, and Nordic countries such as Denmark, Sweden, and Norway also had low bid rates. Mexico was the only country to exceed a 100% bid rate on the 1st but saw the rate drop to 32% on the 6th. Brazil has yet to activate its currency swap line, and Australia supplied only a small amount.

The reason is that the Fed announced it would effectively release unlimited dollars to resolve the global dollar shortage caused by the COVID-19 pandemic, reducing market concerns. On the 10th (local time), the dollar index, which reflects the value of the dollar against six major currencies, fell 0.04% to 99.48.

However, the International Finance Center cautioned, "Liquidity indicators in the U.S. are still recovering, and the strength of the U.S. dollar itself remains. If global credit risks expand again, concerns over dollar liquidity may reemerge. Credit rating agencies have been downgrading sovereign, bank, and corporate credit ratings consecutively, and the premium demanded for credit risk across international financial markets remains high," it added.

[Image source=Yonhap News]

This content was produced with the assistance of AI translation services.