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It’s the $65 Trillion in Debt You Can’t Find That’ll Get You

The repayment obligations on foreign currency swaps and forwards are opaque yet present a very real systemic risk should U.S. dollars become difficult to source.

By Paul J. Davies | December 05, 2022 at 05:44 PM
Photo: Cash in various currencies

Sixty-five trillion dollars is a not big number—it’s a huge, barely comprehensible number. It’s more than two and a half times the size of the entire U.S. Treasuries market, the world’s biggest. It’s 14 percent of the value of all financial assets around the world, according to a recent tally from the Bank for International Settlements (BIS).

It’s also the value of hidden dollar debt unrecorded on the balance sheets of non-U.S. banks and shadow banks as of June this year, according to the BIS, the central bankers’ central bank. It has been growing rapidly, having nearly doubled since 2008.

The fact that most of this hidden debt is owed to banks is another reminder of the ever-growing complexity and and opaqueness of interconnections among the traditional financial system and the shadow banking sector. A whole set of recent mini-crises has shown that these links are part of why central banks keep being forced to step in and stabilize government bond markets and other assets when stress levels rise.

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