Central banks grapple with dollar funding crunch

Central banks are facing the possibility of having to deal with a liquidity crunch in dollar funding markets, as cash-strapped firms draw down credit lines in the face of the coronavirus shock.

Pressures in money markets had been relatively muted, in contrast to violent moves in equity markets, but signs of stress have started emerging. Measures of the cross-currency basis and the Libor-OIS spread have both widened sharply, indicating many financial firms prefer to hang on to dollar liquidity