The BIS draws attention to the risks of currency swaps in its latest quarterly report.
International the settlement bank BIS warns that pension funds and other financial companies have more than 80,000 billion dollars, or more than 75,000 billion euros, of “secret” off-balance sheet debt in currency swap derivatives, i.e. currency exchange contracts.
BIS draws attention to this issue in its latest quarterly report, reports news agency Reuters.
However, BIS considers that the capital market has survived the current year’s market turmoil largely without problems.
The BIS, known as the central bank of central banks, has previously urged central banks to put inflation under control more strongly, but the tone of the bank’s latest report is more cautious than before, according to Reuters.
The bank drew attention to the problems in the virtual currency market and the turmoil in the UK bond market in September.
Arrangement bank the biggest warning is related to currency swaps, which according to the bank are a “blind spot” in the market. According to BIS, the risks associated with them are mainly “in the fog” from the decision-makers.
A currency swap is a derivative contract between two different currencies, in which it is agreed to buy one currency against another currency on a certain date.
Contracts can reduce exchange rate risk, but they have caused problems in the market in the past.
Currency swaps reduced market liquidity in both the financial crisis and the corona crisis in the spring of 2020. At that time, the world’s largest central banks had to make market interventions to ease the situation.