Dollar Debt in FX Swaps and Forwards: Huge, Missing and Growing

December, 2022

Abstract

FX swaps, forwards and currency swaps create forward dollar payment obligations that do not appear on balance sheets and are missing in standard debt statistics. Non-banks outside the United States owe as much as $25 trillion in such missing debt, up from $17 trillion in 2016. Non-US banks owe upwards of $35 trillion. Much of this debt is very short-term and the resulting rollover needs make for dollar funding squeezes. Policy responses to such squeezes include central bank swap lines that are set in a fog, with little information about the geographic distribution of the missing debt.

Key findings:

• FX swaps, forwards and currency swaps give rise to dollar obligations that were backstopped in 2008 and 2020 by central banks acting on little information about who owed debt.
• For non-banks outside the US, dollar obligations from FX swaps, forwards and currency swaps have grown fast, reaching $26 trillion or double their on-balance sheet dollar debt.
• In mid-2022, non-US banks with direct access to Federal Reserve credit only in their US operations owed an estimated $39 trillion in dollars from FX swaps, forwards and currency swaps.