I guess this is one of those good news/bad news stories.

The Telegraph reported yesterday that European banks have built up a $2 trillion funding gap. The banks were basically borrowing in their local currencies to finance the acquisition of dollar assets. They have been able to cover their positions by buying dollars short term but aren’t able to unwind the positions.

Simon Derrick, currency chief at the Bank of New York Mellon, said the implications are obvious. “The global bullion of the last eight years was funded on dollar balance sheets, so the capital destruction we’re seeing leaves banks starved for dollars. Dollar is clearly going to appreciate a lot further,” he said.

Good news for the dollar and inflation, bad news for manufacturing and exports. Which would you rather have?