{"id":39326,"date":"2023-01-02T16:16:51","date_gmt":"2023-01-02T16:16:51","guid":{"rendered":"http:\/\/www.brandon.ddtest.info\/multisite-test\/huge-missing-and-growing-65-trillion-in-dollar-debt-sparks-concern\/"},"modified":"2023-01-02T16:16:51","modified_gmt":"2023-01-02T16:16:51","slug":"huge-missing-and-growing-65-trillion-in-dollar-debt-sparks-concern","status":"publish","type":"post","link":"http:\/\/www.brandon.ddtest.info\/multisite-test\/huge-missing-and-growing-65-trillion-in-dollar-debt-sparks-concern\/","title":{"rendered":"\u2018Huge, Missing and Growing:\u2019 $65 Trillion in Dollar Debt Sparks Concern"},"content":{"rendered":"<p> \n<\/p>\n<div>\n<p>(Bloomberg) &#8212; There\u2019s a hidden risk to the global financial system embedded in the $65 trillion of dollar debt being held by non-US institutions via currency derivatives, according to the Bank for International Settlements.<\/p>\n<p>Most Read from Bloomberg<\/p>\n<p>In a paper with the title \u201chuge, missing and growing,\u201d the BIS said a lack of information is making it harder for policy makers to anticipate the next financial crisis. In particular, they raised concern with the fact that the debt is going unrecorded on balance sheets because of accounting conventions on how to track derivative positions.<\/p>\n<p>The findings, based on data from a survey of global currency markets earlier this year, offer a rare insight into the scale of hidden leverage. Foreign-exchange swaps were a flashpoint during the global financial crisis of 2008 and pandemic of 2020, when dollar funding stress forced central banks to step in to help struggling borrowers.<\/p>\n<p>To be sure, the debt is backed by an equivalent amount of hard currency. To understand how the system works, consider a Dutch pension fund buying assets in the US. As part of the transaction, it will often use a foreign-currency swap to exchange euros for dollars. Then, when it\u2019s closed out, the fund will repay dollars and receives euros. For the length of the trade, the payment obligation is recorded off-balance sheet, which the BIS calls a \u201cblind spot\u201d in the financial system.<\/p>\n<p>It\u2019s that opacity that puts policymakers at a disadvantage, according to BIS researchers Claudio Borio, Robert McCauley and Patrick McGuire.<\/p>\n<p>\u201cIt is not even clear how many analysts are aware of the existence of the large off-balance sheet obligations,\u201d they wrote. \u201cIn times of crises, policies to restore the smooth flow of short-term dollars in the financial system &#8212; for instance, central bank swap lines &#8212; are set in a fog.\u201d<\/p>\n<p><button class=\"link caas-button collapse-button\" aria-label=\"\" title=\"\" data-ylk=\"elm:readmore;slk:Story continues\">Story continues<\/button><\/p>\n<p>The $65 Trillion Hidden Global Debt Bomb: Paul J. Davies<\/p>\n<p>Central banks have found ways to manage the demand for dollars during times of stress. The Federal Reserve has tools, such as swap lines and the FIMA Repo Facility, to help prevent markets from seizing up.<\/p>\n<p>For researchers at the BIS, it\u2019s the sheer scale of the swaps that\u2019s worrying. They estimate that banks headquartered outside the US carry $39 trillion of this debt &#8212; more than double their on-balance sheet obligations and ten times their capital. Accounting conventions only require derivatives to be booked on a net basis, so the full extent of the cash involved isn\u2019t recorded on a balance sheet.<\/p>\n<p>\u201cThere is a staggering volume of off-balance sheet dollar debt that is partly hidden, and FX risk settlement remains stubbornly high,\u201d said Borio, head of the monetary and economic department at the BIS.<\/p>\n<p>Global Libor Transition Has Reshaped Trading, Hedging, BIS Says<\/p>\n<p>In a separate report on Monday, the BIS also flagged the settlement risk as another potential source of instability in the foreign-exchange market. Researchers estimate that $2.2 trillion of daily currency turnover was subject to settlement risk, the possibility that one party to a trade fails to deliver the asset.<\/p>\n<p>Payment-versus-payment arrangements, a settlement mechanism that coordinates transfers to ensure no one is left holding a claim, tend to be unsuitable or too expensive for certain trades, the BIS paper said.<\/p>\n<p>\u201cThere is clearly an urgent need for wholesale market participants to look for alternative ways to eradicate settlement risk exposure across a broad range of currencies outside of the traditional majors,\u201d said Jerome Kemp, president at post-trade processing firm Baton Systems, in response to the paper.<\/p>\n<p>&#8211;With assistance from Eva Szalay.<\/p>\n<p>(Updates with context from an additional BIS report)<\/p>\n<p>Most Read from Bloomberg Businessweek<\/p>\n<p>\u00a92022 Bloomberg L.P.<\/p>\n<\/div>\n\n<br \/><a href=\"https:\/\/news.google.com\/__i\/rss\/rd\/articles\/CBMiTmh0dHBzOi8vZmluYW5jZS55YWhvby5jb20vbmV3cy9odWdlLW1pc3NpbmctZ3Jvd2luZy02NS10cmlsbGlvbi0xMjAwMjUzNDkuaHRtbNIBVmh0dHBzOi8vZmluYW5jZS55YWhvby5jb20vYW1waHRtbC9uZXdzL2h1Z2UtbWlzc2luZy1ncm93aW5nLTY1LXRyaWxsaW9uLTEyMDAyNTM0OS5odG1s?oc=5\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>(Bloomberg) &#8212; There\u2019s a hidden risk to the global financial system embedded in the $65 trillion of dollar debt being held by non-US institutions via currency derivatives, according to the Bank for International Settlements. Most Read from Bloomberg In a paper with the title \u201chuge, missing and growing,\u201d the BIS said a lack of information &hellip;<\/p>\n","protected":false},"author":1,"featured_media":39327,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[161],"tags":[],"_links":{"self":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/39326"}],"collection":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/comments?post=39326"}],"version-history":[{"count":0,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/39326\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media\/39327"}],"wp:attachment":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media?parent=39326"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/categories?post=39326"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/tags?post=39326"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}