Global liquidity is increasing as cross-border credit provision grows, which could portend vulnerabilities in some economies.
According to the latest data from the Bank for International Settlements (BIS), U.S.-dollar credit to non-bank borrowers outside the U.S. grew by 4% to US$11.9 trillion, in the year ended June 30. The growth rate is up from the previous year, which saw a 3% annual increase.
The two primary components of foreign-currency credit in U.S. dollars are bank loans and debt securities. The data indicate that the annual growth of loans came in at 5%, outpacing securities issuance, which was up by 3% from the previous year.
“For most of the post–great financial crisis period, growth in U.S.-dollar-denominated debt securities was higher than that of bank loans. However, recently the trend has reversed,” the BIS said, noting that this is the second consecutive quarter that loan growth leads that of securities.
The BIS also reported that U.S.-dollar credit to emerging market and developing economies grew more slowly, at an annual rate of 2%, to reach US$3.7 trillion in the year to June 30.
According to a speech released today by the BIS that was delivered to a policy seminar last month by Claudio Borio, head of the monetary and economic department at the BIS, the post-crisis growth in U.S.-dollar borrowing is “troubling,” given that emerging economies are “especially vulnerable to boom-bust cycles in global capital flows.”
“It would not be surprising, therefore, if the next episode of financial stress had the U.S.-dollar segment at its epicentre, just as it was during the [financial crisis],” he said.
The BIS also reported that foreign-currency credit denominated in euros and Japanese yen grew at a faster pace than U.S.-dollar credit in the year to June 30. Euro-denominated credit grew at a 9% annual rate to €3.4 trillion, and yen-denominated credit rose by 8% to ¥49.4 trillion.