Liquidity crisis stalks Global Financial system
Experts predict that in 2023 there is a potential threat that is the risk of a liquidity crisis in the global financial system.
According to the Bank for International Settlements (BIS), in December 2022, the large number of off-balance sheet foreign exchange swap positions held by banks amounted to more than 80 trillion USD. This is a big burden for 2023 when exchange rates remain ominously fluctuating.
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Besides, a crisis in the stock market can occur as is evident when stock prices plunge and also for the bond market due to yield fluctuations,... In fact, a liquidity crisis has few symptoms until it starts to affect internal organs of the financial system as a whole.
The International Monetary Fund (IMF) recently released a forecast that measures of market liquidity have worsened for asset classes, especially in recent weeks, as uncertainty about the economic outlook and monetary policy increases, making investors much less risk taking. This could pose a risk to financial stability.
Another issue of concern is that for depositors, investors and other users of the financial system of any kind, vigilance is useless if the investor does not know what he is looking for or what to watch out for.
According to BIS's recent survey of Central Banks, there have been changes in trading patterns and market structure in the foreign exchange derivatives market and the decentralized interest rate.
Of which, forex swap positions have more than 80 trillion USD of hidden debt in US dollars, reported off-balance sheet, while daily forex trading volume exposed to settlement risk remains high despite mechanisms to reduce that risk.
Liquidity crisis stalks Global Financial system
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