The Bank for International Settlements (BIS) has warned that growing U.S. financial volatility could spark a sudden scramble for dollars, particularly from non-bank investors holding vast off-balance-sheet FX swap positions. BIS official Hyun-Song Shin said more than $80 trillion in FX swaps—essentially short-term dollar debt—are held by funds and institutions outside the banking system.
These swaps involve borrowing dollars while holding euros or yen, and a rapid unwinding of these positions could trigger a sharp surge in demand for the U.S. currency. “If you have to roll over that swap you have to join the scramble,” Shin said in a lecture at the London School of Economics.
The warning follows a turbulent April marked by Trump’s tariff escalation and Moody’s downgrade of U.S. sovereign credit. Shin also questioned whether investor faith in U.S. assets—stocks, bonds, and the dollar—might be faltering, noting all three fell together, an unusual alignment that may prompt longer-term strategic reassessments.
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Info via Reuters. The warning seems to be of a worst-case scenario. You can be sure that such a scenario has been gamed out and those seeking USD will not be wondering what to do ....
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