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Visualizing $65 Trillion in Hidden Dollar Debt

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Visualizing $65 Trillion in Hidden Dollar Debt

Visualizing $65 Trillion in Hidden Dollar Debt

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The scale of hidden dollar debt around the world is huge.

No less than $65 trillion in unrecorded dollar debt circulates across the global financial system in non-U.S. banks and shadow banks. To put in perspective, global GDP sits at $104 trillion.

This dollar debt is in the form of foreign-exchange swaps, which have exploded over the last decade due to years of monetary easing and ultra-low interest rates, as investors searched for higher yields. Today, unrecorded debt from these foreign-exchange swaps is worth more than double the dollar debt officially recorded on balance sheets across these institutions.

Based on analysis from the Bank of International Settlements (BIS), the above infographic charts the rise in hidden dollar debt across non-U.S. financial institutions and examines the wider implications of its growth.

Dollar Debt: A Beginners Guide

To start, we will briefly look at the role of foreign-exchange (forex) swaps in the global economy. The forex market is the largest in the world by a long stretch, with trillions traded daily.

Some of the key players that use foreign-exchange swaps are:

  • Corporations
  • Financial institutions
  • Central banks

To understand forex swaps is to look at the role of currency risk. As we have seen in 2022, the U.S. dollar has been on a tear. When this happens, it hurts company earnings that generate revenue across borders. That’s because they earn revenue in foreign currencies (which have likely declined in value against the dollar) but end up converting earnings to U.S. dollars.

In order to reduce currency risk, market participants will buy forex swaps. Here, two parties agree to exchange one currency for another. In short, this helps protect the company from unfavorable foreign exchange rates.

What’s more, due to accounting rules, forex swaps are often unrecorded on balance sheets, and as a result are quite opaque.

A Mountain of Debt

Since 2008, the value of this opaque, unrecorded dollar debt has nearly doubled.

Date
Non-U.S. Bank
Unrecorded Debt
Non-U.S. Shadow Bank
Unrecorded Debt
2022*$39.4T$26.0T
2021$37.1T$25.0T
2020$34.5T$22.9T
2019$32.9T$21.5T
2018$32.4T$20.1T
2017$31.2T$18.8T
2016$27.9T$17.0T
2015$25.1T$15.6T
2014$30.0T$17.0T
2013$30.8T$15.7T
2012$28.9T$15.9T
2011$27.5T$14.7T
2010$24.8T$15.0T
2009$21.4T$12.1T
2008$21.9T$12.4T

*As of June 30, 2022

Driving its rise in part was an era of rock-bottom interest rates globally. As investors sought out higher returns, they took on greater leverage—and forex swaps are one example of this.

Now, as interest rates have been rising, forex swaps have increased amid higher market volatility as investors look to hedge currency risk. This appears in both non-U.S. banks and non-U.S. shadow banks, which are unregulated financial intermediaries.

Overall, the value of unrecorded debt is staggering. An estimated $39 trillion is held by non-U.S. banks along with $26 trillion in overseas shadow banks around the world.

Past Case Studies

Why does the massive growth in dollar debt present risks?

During the market crashes of 2008 and 2020, forex swaps faced a funding squeeze. To borrow U.S. dollars, market participants had to pay high rates. A lot of this hinged on the impact of extreme volatility on these swaps, putting pressure on funding rates.

Here are two examples of how volatility can heighten risk in the forex market:

  • Exchange-rate volatility: Sharp swings in USD can spur a liquidity crunch
  • U.S. interest-rate volatility: Sudden rate fluctuations can mean much higher costs for these trades

In both cases, the U.S. central bank had to step in to provide liquidity in the market and prevent dollar shortages. This was done through pumping cash into the system and creating swap lines with other non-U.S. banks such as the Bank of Canada or the Bank of Japan. These were designed to protect from declining currency values and a liquidity crunch.

Dollar Debt: The Wider Implications

The risk from growing dollar debt and these swap lines arises when a non-U.S. bank or shadow bank may not be able to hold up their end of the agreement. In fact, on a daily basis, there is an estimated $2.2 trillion in forex swaps exposed to settlement risk.

Given its vast scale, this dollar debt could have greater systemic spillover effects. If participants fail to pay it could undermine financial market stability. Because demand for U.S. dollars increases during market uncertainty, a worsening economic climate could potentially expose the forex market to more vulnerabilities.

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Demographics

The Smallest Gender Wage Gaps in OECD Countries

Which OECD countries have the smallest gender wage gaps? We look at the 10 countries with gaps lower than the average.

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Chart showing the OECD countries with the 10 smallest gender pay gaps

The Smallest Gender Pay Gaps in OECD Countries

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Among the 38 member countries in the Organization for Economic Cooperation and Development (OECD), several have made significant strides in addressing income inequality between men and women.

In this graphic we’ve ranked the OECD countries with the 10 smallest gender pay gaps, using the latest data from the OECD for 2022.

The gender pay gap is calculated as the difference between median full-time earnings for men and women divided by the median full-time earnings of men.

Which Countries Have the Smallest Gender Pay Gaps?

Luxembourg’s gender pay gap is the lowest among OECD members at only 0.4%—well below the OECD average of 11.6%.

RankCountryPercentage Difference in Men's & Women's Full-time Earnings
1🇱🇺 Luxembourg0.4%
2🇧🇪 Belgium1.1%
3🇨🇷 Costa Rica1.4%
4🇨🇴 Colombia1.9%
5🇮🇪 Ireland2.0%
6🇭🇷 Croatia3.2%
7🇮🇹 Italy3.3%
8🇳🇴 Norway4.5%
9🇩🇰 Denmark5.8%
10🇵🇹 Portugal6.1%
OECD Average11.6%

Notably, eight of the top 10 countries with the smallest gender pay gaps are located in Europe, as labor equality laws designed to target gender differences have begun to pay off.

The two other countries that made the list were Costa Rica (1.4%) and Colombia (1.9%), which came in third and fourth place, respectively.

How Did Luxembourg (Nearly) Eliminate its Gender Wage Gap?

Luxembourg’s virtually-non-existent gender wage gap in 2020 can be traced back to its diligent efforts to prioritize equal pay. Since 2016, firms that have not complied with the Labor Code’s equal pay laws have been subjected to penalizing fines ranging from €251 to €25,000.

Higher female education rates also contribute to the diminishing pay gap, with Luxembourg tied for first in the educational attainment rankings of the World Economic Forum’s Global Gender Gap Index Report for 2023.

See More Graphics about Demographics and Money

While these 10 countries are well below the OECD’s average gender pay gap of 11.6%, many OECD member countries including the U.S. are significantly above the average. To see the full list of the top 10 OECD countries with the largest gender pay gaps, check out this visualization.

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