Visualizing $65 Trillion in Hidden Dollar Debt.
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 2022 $34.5T $22.9T 2022 $32.9T $21.5T 2022 $32.4T $20.1T 2022 $31.2T $18.8T 2022 $27.9T $17.0T 2022 $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 2022, 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.
Ranked: The World’s Wealthiest Cities, by Number of Millionaires.
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Ranked: The World’s Wealthiest Cities, by Number of Millionaires.
This ranking of the world’s wealthiest cities leverages a robust data set that tracks the location and net worth of ultra-wealthy individuals.
The Top 20 Cities for the World’s Ultra-Wealthy.
How many millionaires, centimillionaires, and billionaires live in the world’s wealthiest cities?
While such metrics are not all encompassing, these measurements of private wealth do help put the financial health and economic activity of some of the world’s wealthiest cities in perspective.
This infographic uses information from the Henley Global Citizens Report, in partnership with New World Wealth, to rank the world’s wealthiest cities. It leverages a comprehensive data set that tracks the movements and spending habits of high-net-worth individuals in over 150 cities around the world.
Which cities and regions have the biggest concentrations of millionaires around the world, each with a net worth greater than $1 million (USD)?
Millionaires and Billionaires in the Wealthiest Cities.
In the latest edition of the ranking, North America has a strong showing with seven of the wealthiest cities, by number of millionaires.
In particular, the United States claims five of the cities in the top 10, including the very top spot with New York City.
Rank City Country Millionaires Billionaires #1 New York ���� United States 345,600 59 #2 Tokyo ���� Japan 304,900 12 #3 San Francisco ���� United States 276,400 62 #4 London ���� United Kingdom 272,400 38 #5 Singapore ���� Singapore 249,800 26 #6 Los Angeles ���� United States 192,400 34 #7 Chicago ���� United States 160,100 28 #8 Houston ���� United States 132,600 25 #9 Beijing ���� China 131,500 44 #10 Shanghai ���� China 130,100 42 #11 Sydney ���� Australia 129,500 16 #12 Hong Kong ���� China (SAR) 125,100 28 #13 Frankfurt ���� Germany 117,400 14 #14 Toronto ���� Canada 116,100 17 #15 Zurich ���� Switzerland 105,100 12 #16 Seoul ���� South Korea 102,100 25 #17 Melbourne ���� Australia 97,300 12 #18 Dallas ���� United States 92,300 18 #19 Geneva ���� Switzerland 90,300 16 #20 Paris ���� France 88,600 15 Top 20 Cities 3,259,600 543.
Asia is the region with the second most millionaires with six cities in the mix. Not surprisingly, China is home to three of these cities, including Hong Kong (SAR).
Europe comes in third with five cities, though only London makes into the top 10 portion of the ranking. Finally, Oceania has two cities on the list, both located in Australia .
How Top Cities Stack Up.
Let’s take a closer look at some of the top-ranking cities making the list.
#1: New York.
New York is the wealthiest city in the world—home to 345,600 millionaires with a total private wealth that exceeds $3 trillion .
New York is home to many Fortune 500 companies and is the financial heart of the United States, with the New York Stock Exchange and NASDAQ located in the Big Apple. Additionally, the city’s real estate market is known for being expensive, with sky-high property values and rents.
#2: Tokyo.
Tokyo is the economic hub of Japan and is one of the most important cities in the world for business and finance. It is home to 304,900 resident millionaires, making it the city with the second most millionaires in the world.
Japan’s largest city is home to the Tokyo Stock Exchange, which is one of the largest stock exchanges in Asia by market capitalization. Tokyo is also a major center for banking and insurance, and is home to many multinational companies like Honda and Sony.
#3: San Francisco Bay Area.
The San Francisco Bay Area boasts 276,400 millionaires. It’s known as the mecca of tech innovation, and as a result, the region has a high concentration of wealthy individuals. San Francisco also has the highest median household income in the country.
The number of millionaires has been growing steadily over the last 10 years, and if the trends of recent years hold, San Francisco could become the number one millionaire hub by 2040.
#4: London.
London has been the world’s wealthiest city for years, but over the past decade there has been an outflow of millionaires.
Today, with 272,400 millionaires, the city holds a more humble position. London is known for its financial and business sectors, and it attracts a significant number of high-earning professionals who contribute to its reputation as a hub of wealth and luxury.
#5: Singapore.
Singapore is home to 249,800 millionaires making it the second richest city in Asia after Tokyo.
Singapore has one of the highest densities of millionaire households in Asia, with over 5% of households having at least $1 million USD in net financial assets. This is due in part to the country’s strong economic growth and favorable business environment, which has attracted many wealthy individuals and families to the country. In addition, Singapore’s political stability, low crime rate, and high standard of living have also contributed to its appeal as a place to live and work.
Fastest Growing Cities for the Rich.
The cities shown in our visualization are already well-established locations for high-net-worth individuals. Some of them have topped the rankings for decades, while some others are less well-known. But what are the fastest growing cities for the rich?
In 2022, cities with strong oil and gas industries like Riyadh, Sharjah, Dubai, Luanda, Abu Dhabi, Doha, and Lagos grew exceptionally. Cities in the UAE became millionaire magnets, attracting over 4,000 millionaires in 2022. In the U.S., a few tax-friendly states like Texas and Florida became home to American companies moving their head offices there.
Looking to the future, companies and high-net-worth individuals will inevitably move where they are treated best. Countries that want to attract wealthy individuals will have to apply tax-friendly policies along with other factors such as quality of life, safety, education, and access to amenities that ultra-wealthy residents value.