The Wall Street Journal | By: Brian Blackstone September 17, 2017:
Global central bank consortium says there may be up to $14 trillion in “missing” foreign exchange-related debt, with uncertain effects on financial stability.
Nonfinancial companies and other institutions outside of the U.S., excluding banks, may be sitting on as much as $14 trillion in “missing debt” held off their balance sheets through foreign-exchange derivatives, according to research published Sunday by the Bank for International Settlements.
These transactions, which resemble debt but for accounting purposes aren’t classified that way, aren’t new. Rather, researchers from the BIS—a consortium of central banks based in Basel, Switzerland—used global banking data and surveys to estimate the size of this debt for the first time.
The implications for financial stability are unclear because FX swaps are backed by cash collateral and can be used to hedge exposure to currency swings, thus promoting stability. Still, the debt “has to be repaid when due and this can raise risk,” the authors wrote.
To read full article – please click here.
