Source: IMF/Bank of International Settlements

In a new feature as part of the Bank of International Settlement’s most recent quarterly review, research showed that as much as US$13 trillion in debt may be missing from balance sheets across the globe.

The paper found that the order of magnitude of obligations to pay dollars through FX swaps used to lend money is similar to cash market obligations of bank loans and bonds, which totaled US$10.7 trillion by the end of March:

Obligations to pay dollars incurred through FX swaps/forwards and currency swaps are functionally equivalent to secured debt. In contrast to other derivatives, agents must repay the principal at maturity, not just the replacement value of the position. Moreover, they could replicate those positions through transactions in the cash and securities markets that would show up on-balance sheet. But because of accounting conventions, this debt does not appear on the balance sheet: it has gone missing…

The previous section, however, suggested that banks as a whole use the market for net dollar borrowing. If so, one could subtract that amount from the total before dividing. Even then, an upper estimate of the banks’ net position would be, say, $2 trillion. This would imply (after dividing the remaining amount by two) a lower amount of non-bank dollar borrowing of $13 trillion.

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