FX swaps and forwards in global dollar debt: “Known knowns” and “known unknowns”

Abstract

Several types of FX derivatives involve the exchange of principal, making them a form of collateralised loan. But unlike other forms of collateralised borrowing, the payment obligations associated with such derivatives are not reported on the balance sheet: they are in a very real sense “missing debt”. This introduces gaps in the compilation of countries’ and sectors’ foreign currency positions, in particular their short-term US dollar obligations and receipts. When economic shocks occur, policies designed to restore the flow of dollar liquidity outside the United States (eg central bank swap lines) are blind to the scale of dollar liquidity needs in particular locations. This paper presents evidence that the missing dollar debt of banks and non-banks outside the United States is large, roughly double the dollar debt recorded on their balance sheets. It then reviews how well benchmark statistical collections – BIS international banking statistics (IBS), BIS OTC Derivatives (OTCD) statistics, International Investment Position (IIP) statistics, and the Coordinated Portfolio Investment Survey (CPIS)) – capture foreign currency positions, both on- and off-balance sheet, and where modifications to these statistics could help to close data gaps.