Tue 6 Nov 2018 / Europe
Country risk from credit derivatives
Countries swapping their foreign currency debt back into their own currency or their domestic debt are as much at risk from credit derivatives as investment banks were 10 years ago. If one counterparty defaults, this could be a huge cost to the other. Most market participants agree to pay some form of collateral when the value of the swap moves one way or another. However, most countries cannot post collateral.