Report comes from the BIS, which is like the Central banks’ Central bank. It also releases the best research, but Powell gets 100x more msm coverage, because Amurica.
Hidden leverage…liquidity issues…10x more debt than capital…reminds me of something 🤔. Only we’re talking TRILLIONS here, not a measly bankman fraud scam of just billions.
Full report here (it’s brief): https://www.bis.org/publ/qtrpdf/r_qt2212h.htm
Verbatim excerpts below:
—
The missing dollar debt from FX swaps/forwards and currency swaps is huge, adding to the vulnerabilities created by on-balance sheet dollar debts of non-US borrowers. It has reached $26 trillion for non-banks outside the United States, double their on-balance sheet debt. Moreover, it has grown smartly since 2016, despite the often significant premium demanded on dollar swap funding. For banks headquartered outside the United States, dollar debt from these instruments is estimated at $39 trillion, more than double their on-balance sheet dollar debt and more than 10 times their capital.
Dollar dominance is striking in this FX market segment, greater than in any other aspect of dollar use. As a vehicle currency, the US dollar is on one side of 88% of outstanding positions – or $85 trillion. An investor or bank wanting to do an FX swap from, say, Swiss francs into Polish zloty would swap francs for dollars and then dollars for zloty.
Off-balance sheet dollar debt may remain out of sight and out of mind, but only until the next time dollar funding liquidity is squeezed. Then, the hidden leverage and maturity mismatch in pension funds’ and insurance companies’ portfolios – generally supposed to be long-only – could pose a policy challenge. And policies to restore the flow of dollars would still be set in a fog.