Abstract: Global banks rely heavily on US money markets for short-term dollar funding. Yet, post-financial crisis regulations — designed to shield domestic investors from default risk — have constrained banks’ access to this crucial funding source. This paper uses novel quantities data to show that foreign exchange (FX) swaps emerge as alternative (“synthetic”) funding instruments when US money market funds reduce wholesale funding to banks. The resulting shift in banks’ demand for FX swaps leads to substantial deviations from covered interest parity (CIP) – the breakdown of a fundamental no-arbitrage pricing condition. Using an instrumental variables strategy that exploits idiosyncratic variation in the availability of wholesale dollars to banks, I show that (i) banks’ swap demand causes CIP deviations to worsen, and (ii) non-bank investors’ inelastic demand triggers spillover effects on their FX hedging costs. I use my empirical estimates to calibrate a model in which global banks optimally choose FX swaps to offset shortfalls in wholesale funding, generating CIP deviations in equilibrium. My model provides two quantitative insights. First, CIP deviations could be halved by increasing banks’ access to wholesale dollars, but with a 40% increase in default risk for money market funds. Second, a sharp drop in wholesale funding can disrupt global dollar credit as the marginal cost of synthetic dollars quickly outpaces the marginal revenue on bank assets. My findings suggest that regulations aimed at reducing domestic investors' default risk have contributed to the growth of synthetic dollar market, creating externalities in the form of CIP deviations and frictions in bank lending.