Pension funds and other “non-bank” financial institutions now have more than $80 trillion in hidden, off-balance sheet dollar debt in the form of FX swaps, according to a warning from the Bank for International Settlements (BIS).
The BIS, known as the central bank to the world’s central banks, voiced the worries in its most recent quarterly report. Where it also stated that this year’s market turmoil had, for the most part, been navigated without many significant issues.
According to the BIS, the estimated “hidden” debt of more than $80 trillion exceeds the stocks of dollar Treasury bills, repo, and commercial paper put together. In April, deal volume averaged almost $5 trillion per day, or two thirds of daily global FX turnover.
BIS officials have been adamantly demanding significant interest rate increases from central banks as this year’s inflation spike has taken hold, but this time it struck a more measured tone.
It estimated that $2.2 trillion worth of currency trades are at risk of failing to settle on any given day due to issues between counterparties, potentially undermining financial stability.