Dubbed the central bank to the world’s central banks, the BIS raised the concerns in its latest quarterly report, in which it also said this year’s market upheaval had, by and large, been navigated without many major issues.
FX swap markets, where for example a Dutch pension fund or Japanese insurer borrows dollars and lends euro or yen in the “spot leg” before later repaying them, have a history of problems.
They saw funding squeezes during both the global financial crisis and again in March 2020 when the COVID-19 pandemic wrought havoc that required top central banks like the U.S. Federal Reserve to intervene with dollar swap lines.
The $80 trillion-plus “hidden” debt estimate exceeds the stocks of dollar Treasury bills, repo and commercial paper combined, the BIS said, while the churn of deals was almost $5 trillion per day in April, two thirds of daily global FX turnover.
“The missing dollar debt from FX swaps/forwards and currency swaps is huge,” the Switzerland-based institution said, describing the lack of direct information about the scale and location of the problems as the key issue.