Source – Reuters
The Bank for International Settlements (BIS) has warned that pension funds and other ‘non-bank’ financial firms now have more than $80 trillion of hidden, off-balance sheet dollar debt in the form of FX swaps. Having this much debt off the balance sheet, the BIS warns, leaves policymakers in a fog to avert the potentially disastrous effects of a global dollar squeeze.
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. For both non-U.S. banks and non-U.S. ‘non-banks’ such as pension funds, dollar obligations from FX swaps are now double their on-balance sheet dollar debt, it estimated.
