# Block 025 — FX BIS data

**Status:** ● covered (Session 39 close, 2026-08-08 — all 4 targets delivered at Working+ across Sessions 38-39. 11 atomic Anki cards pushed total.)
**Phase:** Phase 1 (FX)

## Topic scope

BIS Triennial Central Bank Survey methodology. Daily turnover data. Currency composition. BIS effective exchange rate indices.

## Plan

**Status:** ● covered (Sessions 38-39, 2026-08-07/08).

### Pre-block probes (Session 38, 2026-08-07)

**Q1 (sales-desk methodology):** Singapore-jurisdictional attribution; BIS data captures dealer-side booking, not end-client flow. Substrate landed on first attempt → Working+.

**Q2 (growth interpretation):** USD translation effect (USD appreciation → *understated* USD turnover; real growth > 28% headline) + turnover → volatility causal direction (volatility drives turnover, not reverse). Substrate taught.

**Q3 (FX swap share decline):** Mechanical (numerator grew slower than denominator) + supply-side (Block 023 dealer balance-sheet constraint) + demand-side (April 2025 USD-depreciation episode drove institutional ex-post hedging into outright forwards; FX options surge = volatility-amplified hedging demand). Block 023 framework validated by 2025 data. Substrate taught.

**Q4 (USD dominance / Tier 1-Tier 2 test):** Share arithmetic (sums to ~200%); CNY rise is *within* USD system (95%+ vs USD), not USD displacement; GBP collapse shows Tier 1 status ≠ vehicle currency share; 2025 BIS data *strengthens* the Tier 1/Tier 2 moral-hazard argument. Substrate taught.

**Q5 (counterparty mix shift + leading/lagging):** Institutional-investor forward surge = defensive USD-selling, coincident-to-lagging indicator of USD move (not leading). Contrast with FX swap basis = leading. Substrate taught.

**Q-correction (spot+forward vs FX swap replication):** Spot + forward in opposite directions = economic equivalent of FX swap, BUT three structural differences enable substitution: (1) regulatory/NSFR treatment, (2) margin/collateral, (3) settlement timing. Substrate landed on user catch.

**Transition probe:** Fed swap-line architecture mismatched to forward-market stress; layered dollar-funding architecture (Fed → dealers → non-bank intermediaries). Substrate taught.

### Main material (Sessions 38-39)

**Target 1 (Session 38) — BIS methodology + how to read the data:**
- Survey mechanics: triennial cadence, 52 jurisdictions, ~1,100 dealers, sales-desk reporting, net-net vs net-gross basis
- What's measured: turnover (flow, not stock); OTC FX + IRD; notional vs market value
- What's NOT measured: outstanding amounts (separate H2 survey in November); end-client breakdown beyond broad counterparty categories; CLS/cleared volume; exchange-traded FX; retail FX
- Reading caveats: USD translation effect, volatility regime dependence, FX-strength artifact on currency shares, basis choice, triennial cadence blind spots
- "What changed" framework: 2019 → 2022 → 2025 as the 4 substrate trends (FX swap share decline, USD dominance new high, CNY rise within USD system, institutional-investor forward surge)
- **Target 1 probe:** user landed the flow-vs-capacity discriminator on first attempt → Working+ (flow = throughput, not capacity; PM sizing needs flow + outstanding + dealer BS utilization).

**Target 2 (Session 38) — Instrument composition in depth:**
- Five-instrument table (FX swaps $4.0T/42%, spot $3.0T/31%, outright forwards $1.8T/19%, FX options ~$0.7T/7%, currency swaps ~$0.2T/2%)
- Five 2022→2025 growth rates: FX swap +5%, spot +42%, forwards +60%, options +120%, currency swaps +30%
- FX swap: capacity-constrained, slowest grower, lowest share since 2010
- Spot: vol-regime response
- Outright forwards: institutional substitution layer (Q5 substrate applied)
- FX options: convexity demand for uncertainty
- Currency swaps: structural baseline, low beta to vol
- **Vocabulary check:** user asked FX swap vs currency swap distinction (different maturities, cash flows, use cases). Taught in-session.
- **Target 2 probe:** user initially picked forwards + currency swaps as discriminator. Currency swap correction applied (small base, structural use, not informative). Refined discriminator landed: forwards + FX options divergence as the structural signal vs across-the-board tracking = vol response. → Working+.

**Target 3 (Session 39) — Currency participation in depth:**
- USD dominance mechanics (89.2% share arithmetic, +0.8pp over 2022)
- EUR decline trajectory (32.3% → 30.6% → 28.9%) — USER CORRECTION applied: low EUR rates = MORE EUR funding demand, not less. Actual driver = structural shifts in trade invoicing + reserve diversification + lower EUR volatility regime.
- CNY rise within USD system (8.5% in 2025, up from 4.3% in 2019; 95%+ of CNY trades vs USD) — does NOT prove USD displacement (USD share at new high 89.2%, system MORE USD-centric not less)
- GBP collapse (13% → 13% → 10.2%) — Brexit discount + dealer-location vs currency-share distinction
- JPY flat (17% → 17% → 16.8%)
- CHF rise to 6.4% (sixth place, up from eighth) — SNB factor
- Singapore jurisdictional gain (9.5% → 11.8% of global turnover, now 4th largest hub)
- Cross-pair growth rates (USD/CNY +59%, USD/CHF +60%, USD/HKD +95%)
- **Target 3 probe (PM CNY thesis):** user landed the currency-rank-vs-displacement distinction on first attempt → Working+ (CNY rise ≠ USD displacement; system is more USD-centric; PM confusing rank-movement within second tier with vehicle-currency displacement).

**Target 4 (Session 39) — PM implications:**
- How BIS data informs cross-currency basis substrate (Block 023) — flow ≠ capacity validation
- How BIS data informs Tier 1/Tier 2 framework (Block 024) — moral-hazard argument strengthened
- The layered dollar-funding architecture (Fed → dealers → non-bank intermediaries) — substrate from transition probe
- BIS as one of three data layers (flow + outstanding + dealer BS utilization)
- BIS-regime-discrimination (structural widening vs transient dislocation) — informs whether to fade basis or not
- Fed-tool-trigger for fade entry (Frame shift leading + cross-section break coincident + Fed action lagging)
- Trade construction differs by regime (fast/tight vs slow/wide)
- **Target 4 probe:** user landed structural-widening regime identification correctly (BIS data says fade into trend = fails). Federal-funding-architecture support mis-framed (top layer dormant in normal flow, bottom layer fills gap before dealer BS exhausted); refined frame landed.

## Substrate additions (new across Sessions 38-39)

- 17 Working+ substrate items locked across Sessions 38-39 (full list in competence map "FX — BIS data (NEW)" row)

## Process rules filed (Sessions 38-39)

- 2026-08-07 — USD share FX-strength artifact triangulation (USER CATCH)
- 2026-08-07 — Spot+forward vs FX swap replication with three structural differences (USER CATCH)
- 2026-08-08 — User-correctable substrate: low EUR rates = MORE EUR funding demand (carry direction); EUR decline driven by trade-finance structure not carry demand

## Slip patterns caught

- 2026-08-08 — Mentor's EUR decline framing had wrong mechanism direction (carry trade demand as cause of decline vs trade-finance structural shift); user caught via question on carry trade direction
- 2026-08-08 — Target 4 probe: user initially framed top-layer Fed swap lines as "supportive" for trade in normal flow; mentor refined (top layer dormant in normal flow, only activates at Fed systemic threshold)

## Anki cards

11 atomic cards pushed across Sessions 38-39 (Session 38: 5 cards note IDs 1786103614076-1786103614477; Session 39: 6 cards note IDs 1786183910308-1786183910736). All synced. **Total FX deck: 42 cards.**

## Carry-forward to next block

Block 026 (FX drivers / carry unwind regime) opens next session. Pre-reads assigned in pre-reads.md.

**Substrate load-bearing for Block 026:**
1. **Carry trade direction:** borrow low-yield currency, invest in high-yield currency. Low EUR rates vs USD = MORE EUR/USD carry attractiveness, not less. (From Session 39 EUR correction.)
2. **BIS-regime-discrimination substrate:** structural widening (FX swap share declining, demand rising via forwards/options, non-reporting bank share rising) vs transient dislocation (FX swap share stable, dealer BS normal, no forward surge). Informs whether to fade or not.
3. **Fed-tool-trigger substrate:** Frame shift (leading) + cross-section break (coincident) + Fed action (lagging). The three signals for carry unwind regime shift.
4. **Layered dollar-funding architecture:** Fed swap lines (Tier 1) → dealer balance sheet (constrained) → non-bank intermediaries (marginal). Stress transmits bottom-up; Fed intervenes top-down.
5. **FX swap vs currency swap distinction:** days vs years, liquidity tool vs financing tool, different dealer BS treatment.

**Reference updates:** Blocks 014/023/024/025 BIS references updated from 2022 → 2025. Block 015 verification net-read updated. Block 023 BIS reference updated with 2019/2022/2025 comparator context.