What happens if foreign banks have a bank run on Eurodollars?

First sign of this would be capital controls and a freezing of foreign system(s) aka Rickards Ice Nine scenario. Like Greece in 2015. But the question is really how that cascades through the Eurodollar system

Global trade (the income stream supporting all that Eurodollar debt) was slowing pre-Covid and system was stressed In Sept. Now we’ve got an outright collapse in global trade. How has foreign banking system responded?

Swap lines would work but the order of magnitude we’re talking is unlike anything we’ve ever seen

China is good at capital controls and well known for them so expectations for getting $ out of China are already low. But Europe not so

The Fed has shown its resolve in supporting US banking system so not really worried there. $DB is defacto German state sponsored. But big worries for the Euro

So far China and EU have stayed afloat by cutting imports drastically in order to remain net exporters. But that strategy is short-term only and there’s a zero bound there

Just another reminder how important the US consumer is to the world and the worlds banking system.

Also, the Fed (with its power of the global reserve currency) can and has declared that UST are equivalent to USD.

Of course on-the-run UST are still more valuable the off-the-runs given liquidity but that’s easily solvable as well! The Fed can just declare off the runs = on the runs! A simple standby facility or some such can back it up

Say the Fed issues another $30tn or so in UST as this happens. And they’ve declared UST = USD. The US might consider printing that USD to satisfy all the UST (true monetization ). Benefit to foreigners is it provides reserves to the Eurodollar system to fight those bank runs

So the Eurodollar starts to become a “hard $” system. While the US moves to Central Bank Digital Currency (CBDC). These can be equivalent systems meaning the Fed CBDC = Eurodollar. But that’s not required. Could be an onshore/offshore $ system

One last serious Q - can Germany save both $DB and the Euro