[spiantino]

Calling the total notional value of a pile of swaps "debt" is really misleading. If you and I do $1m in fx swaps, in no sense do either of us owe each other $1m. Currency swaps settle daily I think, so if one of us goes bust all that happens is that I don't get your payments and my currency risk goes back to what it was.

Anyway, headline is sensational enough that I'm not willing to read the article

[spiantino]

OK I lied and opened the article:

"FX swap markets, where for example a Dutch pension fund or Japanese insurer borrows dollars and lends euro or yen before later repaying them, have a history of problems."

Isn't this false? If we do a swap nobody borrows anything, we just agree to track the returns and pay the difference in one direction or another. An FX forward does the same thing, but actually involves borrowing from a bank, which is why the swap is easier.

Anyway that's my understanding

[kasey_junk]

Most fx swaps have a future component, but either the rate will net out or the difference will be paid back.

This minimizes credit costs and fx exposure by trading it for counterparty risk.

The report is suggesting that a liquidity crunch specifically on dollars that need to be delivered in the future may create systematic counterparty risk that central banks will need to solve.