FX swaps vs stablecoins: how banks fund cross-border liquidity, and what changes

An FX swap is a spot currency trade paired with a reverse forward trade, usually days later. Banks use FX swaps to borrow one currency against another and fund the foreign balances that cross-border payments draw on. Stablecoins do a narrower job: they move dollars to the payout point in minutes, so a payment needs less money parked in advance.

FX swaps are the plumbing most payments people never see. They are also the reason a "pre-funded" payout model costs what it costs. Here is how the two tools compare, using the BIS's own 2025 numbers.

Key takeaways

• FX swaps averaged $4 trillion a day in April 2025, the most traded FX instrument (BIS).
• Banks roll short FX swaps to fund foreign currency balances without taking FX risk.
• Pre-funded payouts carry the cost of those swaps and the idle capital they fund.
• Stablecoins replace the parked balance at payment time, not the hedging or term funding.
• The receiving currency still comes from a liquidity provider, so its cost shows up in the quote.

What is an FX swap?

An FX swap exchanges two currencies today and reverses the exchange on a fixed future date, at a rate agreed upfront. The near leg is a spot trade. The far leg is a forward.

Say a bank holds dollars and needs Brazilian reais for a week. It gives dollars and receives reais today, then gives the reais back and gets its dollars back in seven days. The difference between the two exchange rates, called forward points, reflects the interest rate gap between the two currencies.

The bank gets reais without selling its dollars outright. No FX risk, because both legs are fixed. That's the whole point.

The BIS describes FX swaps as mostly short instruments, up to seven days, that are "widely used to manage FX funding liquidity and hedge currency risk" (BIS Triennial Survey 2025). For the price notation behind forward points, see how to read an FX quote.

How big is the FX swap market?

Bigger than everything else in FX. FX swaps averaged $4 trillion a day in April 2025, up 5% from $3.8 trillion in April 2022 (BIS press release).

Source: BIS Triennial Central Bank Survey 2025, preliminary results published 30 September 2025, Graph 1 and Table 1.

Swaps lost share because spot and forwards grew faster during the volatile trading of April 2025. They are still the largest single instrument.

The stock behind those flows is huge too. A December 2022 BIS Quarterly Review article estimated that non-US banks owed about $39 trillion in dollars through FX swaps, forwards, and currency swaps, mostly off balance sheet (BIS Quarterly Review, December 2022).

Why do banks use FX swaps for cross-border payments?

Because cross-border payments in the bank system are pre-funded. To pay out in reais, someone has to hold reais in Brazil before the payment arrives.

Correspondent banks keep balances in each other's books, called nostro and vostro accounts. A payout company does the same with local accounts per country. Those balances need funding, and FX swaps are the cheap, hedged way to get foreign currency for a week at a time and roll it.

The catch: the money sits there. It earns little, and the swap that funds it costs the interest rate gap every time it rolls. Correspondent banking vs stablecoin liquidity covers the chain of banks, and what "no pre-funding" means covers the alternative.

There is also settlement risk. The two legs of an FX trade can settle at different times, so one side can pay and not get paid. Herstatt risk explains how that exposure works.

What do stablecoins replace, and what don't they?

Stablecoins replace the parked balance at payment time. They don't replace hedging or term funding.

The honest part: a stablecoin doesn't create reais. When USDC is converted to BRL, a liquidity provider sells reais it holds or sources. That provider may well use FX swaps itself. What changes is who carries the balance and for how long. Instead of every payout company pre-funding every corridor, liquidity concentrates with providers that quote it on demand.

If you need to fix a rate for a future date, that's still a forward or a swap. Live quote vs forward contract vs fixed rate covers when to use which.

Illustrative example: what does funding a payout corridor with swaps cost?

Illustrative example. A payout company sends the equivalent of $1,000,000 a day to Brazil and keeps three days of reais ready, so $3,000,000 worth of BRL sits in local accounts. It funds that balance with seven-day FX swaps. All rates below are made up for the arithmetic, using a simple 360-day count.

That $303,000 is the price of having reais waiting. It gets recovered somewhere: in the spread, in fees, or in a volume minimum.

Now the on-demand model. The company holds its float in USDC, which stays in dollars, and converts each payout against a live quote at send time. No BRL balance to fund. The liquidity provider still has a cost of carry, but it's shared across many customers and shows up as a visible line in each quote instead of a hidden cost in the operating budget.

Can stablecoins carry the system the way FX swaps do?

No, and they don't need to. The BIS Annual Economic Report 2025 tests stablecoins against three standards (singleness, elasticity, and integrity) and concludes they "fall short of requirements to be the mainstay of the monetary system" (BIS Annual Economic Report 2025, chapter III).

Elasticity is the relevant one here. The FX swap market can expand bank balance sheets to meet funding demand. A stablecoin's supply depends on dollars deposited with the issuer. That's fine for moving a payment. It's not a replacement for the interbank funding market.

The practical risk for a payment business is the peg. Stablecoin depeg risk for payment companies covers how to set limits. Treat stablecoins as a fast settlement rail, and size what you hold accordingly.

Where does BlindPay fit?

BlindPay is on the payment side, not the funding side. A payout is funded from a stablecoin balance and executed against a quote that locks the rate and fees for 5 minutes, so there is no destination currency to pre-fund (payout quotes).

The quote shows commercial_quotation, the market rate, next to blindpay_quotation, the rate after BlindPay's margin, with receiver_amount and the fee lines. BlindPay combines a monthly plan with per-transaction fees that vary by rail and network and are disclosed in the live quote before execute. Whatever the corridor's liquidity costs, you see it in that quote. What a payment corridor is explains why it differs by route.

What to do next

Work out what your current payout model holds in destination currencies today, multiply by your funding cost, and compare it with a live quote for the same corridor. The payout quotes docs show the fields to read.