The reason nothing ever goes in a straight line is that first everything is always changing. How and why are questions we often don’t have good answers for. And not only that, how we respond to changes expected and unexpected is really nothing more than the messiness of the scientific process, trial and error carried out on perhaps the grandest human scale.

So it is with the monetary system. The eurodollar has never stood still. Even over the last ten years, in decay, it has remade itself time and again (and again?). Just when you think you have it clocked (literally), something changes and you’re left searching for new cues and clues – and trying to make sense of what these new facets mean.

The most prominent alteration to the systemic dynamic since 2007 (with a clear break at Bear Stearns) has been the removal of European banks, and their partial replacement by Asian counterparts, primarily Japanese. The way in which European banks supplied “dollars” was not quite the same as the way the Japanese would come to. Not only did the eurodollar become more Asian, it became more derivative, more FX in operation.

One reason for that is European participants in this credit-based monetary system were never shy (precrisis) about creating “dollars.” Whether Swiss or British, Deutsche Bank or even Unicredit in Italy, dollar liabilities were added on an ex nihilo basis at the margins the minute whatever firm saw any trading opportunity – governed, as always, by risk vs. return.

The Japanese are different. Operating more so on what was once called “hub and spoke”, Japanese banks particularly after 2008 conducted more of a redistribution regime. In other words, owing largely to the Bank of Japan’s post-crisis affinity for multiple QE’s, financial firms in that country had an excess of yen (bank reserves) and nothing to do with them (defeating, of course, the idea behind QE).

This was the real carry trade, where a Japanese bank overflowing with bank reserves in yen would swap them into dollars because risk-adjusted opportunity was with dollars. Not in America, of course, nor really in the other developed and Western economies, but across particularly the Asian world in the aftermath of the Great “Recession” the EM’s still needed “dollars” and everyone just knew their growth model was left intact.

Thus, this Asian “dollar” required a lot of FX to mobilize as well as an almost 19th century kind of banking process to complete it. Before the modern bank, the one possessed after 1995 and RiskMetrics with quantifying everything, lending, in particular, was done on a personal basis. The local country bank did business with other businesses in the area because that bank’s officials knew personally, and made it their mission to know personally, what their customers were doing, how they were doing, and why they might need or not need the bank.

Try as it might and often as it claimed, there was one country in Asia that while attempting to modernize along Western lines has resisted often vociferously foreign penetration. In banking terms, that meant the kind of in depth mathematical risk profiles were harder if not impossible to conduct. Chinese financial firms remained somewhat of a mystery even in 2009 just as the rest of the world would come to depend upon China economically for everything in this “new normal.”

Japanese banks, however, were doing quite a lot of business with Chinese firms in large part because the old keiretsu model of conglomerate integration while reformed still held. As I wrote back in December 2015, the moving of Japanese production capacity offshore had financial ramifications, too, particularly where a lot of that capital flight ultimately landed:

Much of that, as I have chronicled over the past few years, has ended up in China. That suggests that as Japanese formerly keiretsu penetrated further into mainland China, they likely brought with them their banking “core.” At the very least, Japanese banks with close ties to these offshoring Japanese firms were likely introduced to Chinese industrial counterparts.