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BIS Bulletin 6 looks at recent stresses in credit markets through the lens of exchange traded funds (ETFs)
bis.org/publ/bisbull06…
@BIS_org Image
ETFs trade as shares and offer immediate liquidity, even for illiquid underlying assets; specialised intermediaries called “authorised participants” issue or redeem ETF shares in response to market demand
This Bulletin examines how ETFs performed during the recent period of stress in corporate credit markets when spreads rose sharply Image
Credit market stresses manifested themselves through large discounts in ETF prices relative to the net asset values (NAVs) of the underlying assets Image
Discounts to NAV reflected the continued trading of ETFs in spite of lack of trade in the underlying assets; in this sense ETFs provided a "safety valve"
Central bank liquidity provision was pivotal in bringing this episode of NAV discounts to a close Image
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More from @HyunSongShin see all

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Hyun Song Shin
@HyunSongShin
BIS Bulletin 5 deals with the recent turbulence experienced by emerging market economies
bis.org/publ/bisbull05…
@BIS_org
Borrowing in domestic currency has not insulated emerging markets from the global shock unleashed by Covid-19; local currency bond spreads spiked and currencies fell as EMEs experienced large portfolio outflows
Recent experience conforms to the general rule that emerging market sovereign spreads and weaker EME currencies go hand-in-hand; except that this time, it was on display with a vengeance (see the spikes in the left-hand panel)
Read 8 tweets
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Hyun Song Shin
@HyunSongShin
How to design a central bank digital currency, if you must

Choose between:

1. Direct claim on central bank or on a narrow bank (or hybrid)

2. Centralised ledger or a distributed ledger (DLT)

3. Account-based or token-based system

bis.org/publ/qtrpdf/r_…
2/n
Direct claim on the central bank is closest in spirit to digital cash, but entails customer-facing role (you will need to call your central bank if your rent payment to your landlord doesn't get through)
3/n
Indirect CBDC through a narrow bank (with 100% reserves at the central bank) farms out the customer-facing role, but then the data will need to be safeguarded
Read 12 tweets
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Hyun Song Shin
@HyunSongShin
New working paper using micro data at the firm-loan level
We are accustomed to linking depreciation with boosting exports; this neglects the financial channels of dollar appreciation working through working capital that weighs on global value chains
Using data on 4.6 million shipments at the sector level, and loan-level data that matches borrowing firms and lending banks we find that firms more exposed to wholesale-funded banks suffer more from a stronger dollar
Read 13 tweets

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