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Bank positions in FX swaps: insights from CLS
A typical day sees almost $4 trillion in new FX swap contracts, most of which involve a payment of US dollars (BIS (2022)). Unlike for repo and other forms of debt, the full attendant payment obligations arising from FX swaps are not reported on a balance sheet (Borio et al (2017, 2022)). The market for FX swaps is two-tiered, with dealer banks at the core, as these instruments trade mainly over the counter (OTC). The dealer-customer segment mostly serves the FX hedging purposes of financial and non-financial customers. In addition, dealer banks transact with each other to offset the imbalances that arise in trades ... (full story)