BIS Reports Growing Dollar Debt in FX Swaps and Forwards
Posted on 12/05/2022
As the world’s reserve currency, the U.S. dollar plays a central role in the global financial system. Foreign exchange swaps, forwards, and currency swaps create forward dollar payment obligations that do not appear on balance sheets and are missing in standard debt statistics. The Bank for International Settlements (BIS) believes that non-banks outside the United States owe as much as US$ 25 trillion in such missing debt, up from US$ 17 trillion in 2016. The BIS believes that this debt is short-term and that the rollover of such debt would create a U.S. dollar funding squeeze. The number of swaps shot up dramatically during the COVID-19 pandemic.
The BIS report is titled, “Dollar debt in FX swaps and forwards: huge, missing and growing” and is linked here: https://www.bis.org/publ/qtrpdf/r_qt2212h.htm
The likely solution to all of this may be more central bank swap lines, whereby the Federal Reserve channels U.S. dollars to key central banks.
