This particular offshore dollar liquidity gauge, calculated as the ratio of total liabilities of foreign-related institutions in the U.S. to U.S. deposits at foreign banks, remains mired in a secular upswing, suggesting that foreign banks are still boosting their dollar liabilities in U.S. markets at a faster pace than U.S. residents are placing dollars in foreign institutions.
That signals a tightening of synthetic dollar liquidity, as global financial institutions lean more heavily on U.S. funding sources; essentially a build-up of financial stress or a prelude to liquidity tightening, as offshore dollar demand intensifies.
On the flip side, if the ratio is falling (like it did from the 2015 peak to the 2021 trough), it could point to a period of relaxation in offshore liquidity or post-crisis liquidity stabilization (or perhaps some combination of the two), implying either a return of confidence in the offshore dollar system or de-leveraging among foreign institutions.