Offshore Eurodollar system faces structural squeeze
Offshore financial institutions holding dollar-denominated liabilities face an existential challenge to defend par value without direct Federal Reserve access.
The argument
The speaker argues that while onshore banks have robust Fed-backed mechanisms to defend par, offshore banks must hoard US Treasuries to backstop their liabilities. As the US onshore and stablecoin systems drain global liquidity, these offshore entities will face aggressive market arbitrage and liquidity pressure.
The thesis, stress-tested
✓ What validates it
- ✓Increased Treasury hoarding by offshore jurisdictions in TIC reports
- ✓Liquidity crises or par-defense failures at major offshore financial hubs
▸ Risks discussed
- ▸Federal Reserve establishing new offshore swap lines to relieve pressure
- ▸Slower-than-expected drain of offshore dollar liquidity
Hear it yourself
"Treasury. You had the federal reserve notes in our circulation at the same time. It's a similar analogy to where we were, where we had two competing dollars, and they trade at par with each other one to one, and everybody treats them as, you know, the same thing, stablecoins, stablecoin dollars and federal reserve, you know, note dollars. We still treat those as one to one, but they're $2, competing. And one of them's one of them's coming, and one of them's going. Right? Alright. And and in that period where they're competing, can they hold different values even though they are tradable one to one? Great question."
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