two types of sellers in financial markets. The first kind sell because they want to. They may need cash to meet a contingency; or they might coolly judge that the risks of holding an asset are not matched by the prospective rewards. The second kind sell because they have to. The archetype is an investor who has borrowed to fund his purchase and has his loan called. If there are lots of forced sellers, as can happen in periods of stress, the result is a rout.
This brings us to the dollar. An evergreen concern is the scale of dollar securities issued or held outside America. In the midst of the financial crisis of 2007-09, the Federal Reserve set up currency-swap lines with other central banks to deal with a lack of dollars, as borrowers outside America were caught short. In stressed markets a spike in the greenback is a tell. Investors sell what they own to buy the dollar not because they want to but because they have to.
Yet it is easy to forget how bearish sentiment on the dollar was in 2008. Many expected it to fall in the teeth of a crisis that had, after all, originated in America. Instead it spiked as banks outside America scrambled to get hold of greenbacks in order to roll over the short-term dollar borrowings that funded their holdings of mortgage securities. In 2015-16 China ran down its reserves by $1trn in part to meet demand for dollars from Chinese companies who had borrowed heavily offshore.
Other plausible, but voluntary, changes in behaviour would affect the dollar in a variety of ways, or not at all. Foreign investors might simply choose to sell American securities amid the current turmoil—a sort of financial self-quarantine. But surplus savings must be put to work somewhere. Asian funds have been steady buyers of overseas debt securities. Japan’s Government Pension Investment Fund, a $1.
Kitties would have a better ROI I suspect
What to make of PHP strength though... Pinoys in panic buying? 😅
Forced by whom exactly? Their own economic self-interest?
It’s our currency but your problem.
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