If cross currency basis indicates that USD funding through swaps costs more than it costs to borrow USD in the money market directly, and this is supposed to show a USD shortsge, then why haven't the money markets for USD become more expensive to borrow in as well? Are there two different markets here?
Either. The point is, the USD you receive had to come from somewhere. Currency swaps, as you are no doubt aware, are OTC. My only take on this is that you are tapping into the cash savings / reserves of various corporates, reserve banks, or funds of various types. I'm not sure why pressure in these markets doesn't affect the money market rates directly. My only conclusion was that these areas for borrowing tap into completely different and unrelated markets. If they didn't, wouldn't increasing USD 'cross currency basis' also correspond with an increase in money market rates?