Tuesday, October 12, 2021, 12:30PM to 2:00PM (EDT)
ONLINE | Economics Seminars Series: Elham Saeidinezhad
Online | Zoom
Dr. Elham Saeidinezhad from Barnard College/ Columbia University will present her paper, “Is the Future of the FX Swap Market “Dealer-Less”? A Global Dollar Funding Perspective.”
Foreign exchange (FX) dealers are key institutions that connect different national monetary jurisdictions in the international monetary system. For currencies where FX turnover is low, market makers are central banks. For currencies with the highest FX turnover, such as US-Dollar, those dealers are primarily private banks. This is a feature that too often gets overlooked in international finance scholarship. This paper investigates the emergence of a new, less dealer-centric setup of the Offshore US-Dollar System. FX dealing banks face increasing competition from non-bank institutions such as prime brokerage funds to provide market liquidity in FX swaps. Further, FX investors have switched from traditional Eurodollar deposits to FX swaps to raise US-Dollar funding. The paper sheds light on the long-term consequences of FX dealers’ changing business model and the hierarchical structure of the international monetary system. This paper shows that such evolution will give rise to a different global FX system where non-bank institutions, such as brokers, become the primary players. The emergence of a non-dealer-centric FX market would reduce the liquidity in the global US-Dollar funding market. In the meantime, the investors’ shift towards FX swaps for funding purposes would make the “basis,” a measure of US-Dollar shortage, and a breakdown of the covered interest parity, a permanent feature of the FX swap pricing.
Presented by the Economics Department at The New School of Social Research.
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