The Bank for International Settlements (BIS), the central bank to the world’s central banks, has raised concerns over what it claims are more than USD80tr of hidden, off-balance sheet dollar debt in the form of FX swaps. The BIS said pension funds and other non-bank financial firms are facing an FX swap debt blind spot that risked leaving policymakers in a “fog”. 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. The USD80tr-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 USD5tr per day in April 2022, two-thirds of daily global FX turnover.
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