Tag Archive for: CDBC

The BIS Is Right To Worry.
The Eurasian Operating System 1.0 Is Built To Remove The Fuse.

Abstract

In November 2025, Pablo Hernández de Cos, General Manager of the Bank for International Settlements (BIS), delivered a lecture at the London School of Economics that crystallised a new class of systemic risk: the combination of historically high public debt, and a sovereign bond market now intermediated largely by non-bank financial institutions (NBFIs), especially leveraged hedge funds and FX-swap-dependent asset managers.

His central warning is clear: fiscal sustainability models that look only at debt, growth and interest rates are now incomplete. They ignore the balance sheet constraints, leverage profiles and funding structures of the intermediaries actually holding government bonds. As a result, sovereign yields can “snap back” violently, long before textbook sustainability thresholds are reached.

D/l: https://www.bis.org/speeches/sp251127.htm

This blog argues, that our Eurasian Operating System 1.0 – and specifically its modules CBDC Bridge, Aequor Fidelis, TRUST 4T, the Space Backbone and the broader OS architecture – does not merely sit adjacent to that risk. Properly implemented, it directly neutralises or compresses every major amplification channel highlighted in the BIS lecture.

The Born Peace & Unitry Agenda and it’s core Operating System can be found here:

Substack – Blog: https://impactnegotiating.substack.com/p/born-peace-and-unity-agenda-2026

PDF Download-(DropBox): https://www.dropbox.com/scl/fi/9yiurk1r8k8ycsufz0jpq/Eura1.0.pdf?rlkey=jj8na5bpsq9loghkrhklrjxdm&dl=0

The result is an economically and institutionally coherent claim: an evidence-anchored, satellite-secured, programmable financial and legal architecture is precisely what you would design if your objective was to make the BIS concerns structurally obsolete over a 20- to 30-year horizon.

1. What Hernández de Cos Is Actually Saying

The lecture can be reduced to four non-negotiable facts that matter for policymakers, central bankers and sovereign wealth funds.

1. Debt levels are historically high – and still rising

Advanced economies are on track for median public debt ratios around 120 percent of GDP by 2030, even under conservative assumptions. The drivers are familiar: ageing, defence, green transition and post-pandemic legacies.

Interest expenses have already risen and could increase further if inflation resurges or term premia reprice.

2. Intermediation has shifted from banks to NBFIs

Banks have retreated from balance-sheet-intensive activities after the post-GFC regulatory reforms. In their place, NBFIs – investment funds, hedge funds, money market funds, pension funds, insurers – have become the main marginal buyers of sovereign debt.

3. Three novel amplification channels now dominate sovereign risk

Beyond the “old” channels (duration-matching blow-ups, fire sales, original sin redux), the lecture isolates three new mechanisms:

3. Hedge fund leverage via repos with zero haircuts
   Around 70 percent of bilateral repos to hedge funds in US dollars and 50 percent in euros carry a haircut of zero – effectively unconstrained leverage against government bonds.
4. FX-swap-based currency hedging by “real money” investors
   Pension funds and insurers hedge foreign-currency sovereign exposures via very short-dated FX swaps, transforming currency risk into rollover risk and creating a maturity mismatch between long-term assets and short-term funding. FX swaps outstanding reached roughly 130 trillion US dollars by mid-2025, with three quarters maturing in less than a year.
5. The repo–FX-swap dealer nexus
   The same dealer banks supply short-term dollar funding to both repos and FX swaps. Stress in one market erodes their risk budget and causes them to withdraw from the other, creating a feedback loop and setting up global dollar scrambles of the type seen in March 2020.
6. Policy response: regulate NBFI leverage, improve data, maintain monetary credibility

The BIS prescription emphasises:

4. targeted minimum haircuts and expanded central clearing to curb leverage
5. closing data gaps on directional positions and FX derivative obligations
6. credible monetary policy to contain risk premia
7. gradual but firm fiscal consolidation and structural reforms

In short: we must make the system less fragile before the next shock.

This is not an abstract concern. It is an explicit warning that sovereign debt markets have become vulnerable not because of some esoteric macro model, but because of the concrete plumbing of repos, FX swaps and leveraged NBFIs.

2. The Eurasian Operating System 1.0 As A Financial Stability Architecture

Our architecture was not designed as a BIS-compliance exercise. It was designed as a multipolar peace and reconstruction engine. Yet viewed through the Hernández de Cos lens, it is almost unnervingly aligned with the stability problems he describes.

The core elements are:

• CBDC Bridge – a satellite-secured, sanction-resilient, programmable settlement rail linking the digital currencies of EU, Russia and BRICS. Payments clear only on verified performance; escrow logic is embedded; data are end-to-end verifiable.
• Aequor Fidelis – the multipolar negotiation, mediation and legal continuity system. It moves disputes from geopolitics into evidence and automated execution, and crucially, channels capital and risk into formal, monitored pathways rather than into shadow leverage.
• TRUST 4T (“Trust for Transitions”) – the identity, provenance and authentication layer that cryptographically signs all operational events, financial flows, KPIs and infrastructure telemetry inside the OS.
• Space Backbone – orbital audit and timestamping. It gives sovereign markets what they currently lack: a tamper-proof, politically neutral evidence layer for data, transactions and contractual performance.
• The broader OS 1.0 stack – neutral corridors, reconstruction engines, Peace Wallet, PDI and Codex – which collectively convert volatility into long-horizon, rule-based investment.

The question is not whether these concepts sound elegant. The question is whether they realistically address the concrete stress channels the BIS is worried about.

They do, and the mechanism is structural rather than cosmetic.

3. How The CBDC Bridge Re-wires The FX Swap And Repo Nexus

The Hernández de Cos diagnosis of FX swaps and repos is brutally specific: short-term dollar markets, opaque bilateral exposures and unconstrained leverage create non-linear yield spikes.

The CBDC Bridge responds at the architectural level.

3.1 From FX Swaps To Direct, Programmable Currency Interoperability

In the current global system, currency hedging for sovereign portfolios is achieved through off-balance-sheet FX swaps. These contracts are short-dated by design and dependent on the willingness and capacity of dealer banks to roll them.

The Bridge changes the modality:

• Cross-currency exposures between EU, Russia and BRICS are settled directly in interoperable CBDCs, not synthetically replicated through layers of FX derivatives.
• Hedging is no longer “borrow short in swaps, hold long in bonds”; it becomes “hold diversified reserves across CBDCs and PDI-linked instruments, with transparent maturity profiles”.
• Currency risk is not hidden in a tower of three-month swaps; it is made explicit in balance sheets and governed under the Codex.

This does not eliminate FX derivatives. It makes them supplementary instead of foundational. The rollover cliff described by Hernández de Cos becomes a design choice at the margin, not the main structural pillar of sovereign hedging.

3.2 Satellite-Secured Escrow Instead Of Zero-Haircut Repo

The BIS problem is not repos per se. It is repos with zero haircuts extended to hedge funds that are running huge relative-value trades on tiny spreads.

Under the OS:

• Large cross-border positions that matter for sovereign stability are increasingly financed through programmable escrow on the CBDC Bridge, not opaque bilateral repos.
• Escrow parameters – margin, triggers, step-in rights – are encoded in smart settlement logic aligned with Codex norms and PDI thresholds.
• Haircuts cease to be a discretionary, relationship-driven variable set by dealers with incomplete visibility of client exposures.

In practice, that means:

• High-leverage, basis-trade-style strategies can still exist, but capital that touches the OS rails is subject to minimum collateralisation and transparent, enforceable prudential rules.
• Sovereign-relevant exposures are visible in real time to authorised supervisors via TRUST 4T and the Space Backbone, rather than inferred ex post from partial data.

The architecture does not replace global prudential regulation. It makes it enforceable at transaction level in a multipolar context.

3.3 Breaking The Dealer Bottleneck

Hernández de Cos emphasises that repo and FX swaps are joined at the hip through the balance sheets of a small group of dealer banks. Stress in one market drains their risk budget and forces exit from the other, amplifying shocks.

The CBDC Bridge, combined with the Space Backbone, diversifies and partly disintermediates that bottleneck:

• Settlement occurs on a shared, satellite-secured infrastructure where central banks and authorised institutions are direct nodes, not just clients of a narrow dealer club.
• Short-term funding for cross-currency positions is provided via programmed liquidity windows linked to codified risk parameters and PDI conditions, not purely through dealer discretion.
• Dealer banks still matter, but they are no longer the single choke point whose risk constraints can shut down both repo and FX swap markets simultaneously.

The result is not a “no-dealer” utopia. It is a system where dealer stress no longer automatically translates into sovereign yield spikes because key flows can re-route through neutral, rule-based rails.

4. Aequor Fidelis: Moving Risk From Shadow Markets To Structured Resolution

One of the under-appreciated drivers of NBFI leverage is legal uncertainty. When disputes are slow, outcomes volatile and enforcement discretionary, there is a strong incentive to hide risk in complex structures that can be adjusted faster than courts can adjudicate.

Aequor Fidelis inverts this logic.

4.1 FOA 2.0 As Leak-Prevention

The lecture hints at, but does not fully explore, the fact that unresolved disputes and uncertainty about exit options can drive position hoarding, over-hedging and path-dependent leverage. The OS responds by:

• Providing a fast, structured FOA 2.0 mechanism where complex cross-border value conflicts are resolved within weeks on the basis of shared evidence.
• Linking Aequor awards to automatic execution through the CBDC Bridge, which removes settlement risk and eliminates the incentive to over-insure via synthetic exposures.

The predictable, programmable path from dispute to execution reduces the demand for leverage-intensive hedging strategies that exist mainly to protect against legal and settlement uncertainty.

4.2 Dual Sovereignty And Prudential Convergence

Hernández de Cos calls for “congruent regulation” across banks and NBFIs when vulnerabilities are similar.

Aequor Fidelis offers an institutional route toward that goal in a multipolar setting:

• Jurisdictions retain legal sovereignty.
• Yet, by opting into Aequor templates and the Codex, they agree on shared prudential outcomes for activities conducted on OS rails – including leverage limits, haircuts and disclosure norms for systemically relevant trades.
• Disputes about prudential breaches are handled via Aequor, not politicised naming and shaming.

That makes it possible to enforce BIS-style leverage discipline in cross-bloc transactions without requiring a single supranational regulator.

5. TRUST 4T (Trust For Transitions) And The Space Backbone: Closing The Data Gaps The BIS Is Most Worried About

A recurring theme in the lecture is informational blindness. Authorities lack high-quality, position-level, currency-specific data on key exposures, especially in FX derivatives and repo markets.

This is exactly the domain the OS treats as a first-order design problem.

5.1 From Fragmented Reporting To Cryptographic Ground Truth

TRUST 4T ensures that every material transaction on OS rails is:

• strongly identified (who did what, in which capacity)
• time-sequenced
• cryptographically signed at the edge
• linked to underlying assets, contracts and KPIs.

The Space Backbone then:

• timestamps and hashes these records in orbit
• provides cross-jurisdictional audit trails that are physically out of reach of domestic political interference
• enables authorised supervisors in each bloc to reconstruct exposures without relying on self-reported, heterogeneous local datasets.

Where the BIS today must call for “more data” and laborious global aggregation efforts, the OS offers an environment where relevant data is generated correctly by construction.

5.2 Directional Positions And FX Obligations As First-Class Objects

The lecture notes the importance of directional data by currency and of the “geography” of FX derivative obligations.

On OS rails:

• Every cross-currency position is tagged by currency, tenor, counterparty sector and jurisdiction.
• Derivative obligations that intersect with CBDC Bridge settlement are explicitly registered, not inferred.
• Supervisors can view aggregated, anonymised dashboards showing stress points in near real time, while still preserving confidentiality at the micro level.

That turns the BIS vision of closing data gaps into an operational feature rather than a multi-year regulatory project.

6. Neutralising Snapback Risk Through Structural Design

At its heart, the BIS warning is about “snapback risk”: the non-linear, hard-to-predict jumps in sovereign yields that occur when intermediaries’ risk capacity is exhausted.

The Eurasian Operating System 1.0 reduces this risk through multiple, mutually reinforcing channels.

6.1 Making Stability Financeable And Evidence-Bound

The Peace Dividend Index (PDI) and associated instruments turn verified stability into an investable asset class. Instead of loading more risk onto sovereign bonds financed by leveraged NBFIs, the system:

• creates PDI-linked bonds and parametric peace instruments whose payoff is tied to measurable, orbital-audited stability metrics
• channels long-horizon capital into these instruments through the CBDC Bridge
• reduces the pressure on traditional sovereign bonds to carry the full weight of investors’ search for “safe” yield.

The more capital that migrates into PDI-linked, evidence-anchored structures, the less leverage needs to sit on top of conventional sovereign paper.

6.2 Transforming Fiscal Space Through Reconstruction Engines

Hernández de Cos rightly insists that sustainable fiscal trajectories and structural reforms are essential to taming macro-financial risks.

The OS architecture translates that abstract prescription into a concrete mechanism:

• Reconstruction Engines, NEZs and industrial clusters create real growth capacity and tax bases in devastated or underperforming regions.
• Neighborhood Reactors and Grid-X reduce the energy cost volatility that often undermines fiscal plans.
• Workforce, environmental and cultural continuity layers stabilise the real economy that ultimately backs sovereign debt.

This is not a substitute for prudent fiscal policy. It is the operational environment that makes such policy politically and economically feasible by generating visible, shared gains.

7. Moral Hazard, Central Banks And The OS As Ex Ante Discipline

The lecture is explicit about the moral hazard created when markets expect central banks to act as market makers of last resort. Such expectations can encourage hedge funds and other NBFIs to run higher leverage, confident that the left tail of the distribution will be truncated by intervention.

The OS interacts with that problem in two important ways.

7.1 Pre-commitment To Hard Constraints At The Rail Level

By design:

• OS settlement rails incorporate prudential rules (for haircuts, leverage, margin) as execution pre-conditions.
• These rules are agreed in advance between blocs, embedded in code and supervised via TRUST 4T and the Space Backbone.
• Scope for “gaming” the expectation of central bank rescue is reduced because the riskiest leverage profiles are structurally difficult to express on OS rails.

That does not prevent actors from operating outside the OS. But capital that wishes to benefit from CBDC Bridge liquidity and PDI instruments must accept ex ante discipline.

7.2 Clear Separation Between Market Functioning And Stimulus

The BIS calls for clear distinctions between central bank interventions for market functioning and those for monetary stimulus, with built-in penalty fees and expiry conditions.

The OS naturally supports such a design:

• Emergency liquidity facilities on the CBDC Bridge can be parameterised with explicit penalty logic, time bounds and eligibility tied to verified exposures.
• Because the Space Backbone records all interventions and their beneficiaries, ex post audits and political accountability become straightforward.
• Monetary policy and financial stability operations can thus be operationally separated while still using shared rails.

In effect, the OS provides the “programmable plumbing” that the BIS currently has to describe only in conceptual terms.

8. Conclusion: From Diagnosis To Design

The Hernández de Cos lecture is not another generic warning about “high debt” or “shadow banking”. It is a precise map of how NBFI leverage, FX swap funding and dealer bottlenecks can destabilise sovereign markets long before fiscal arithmetic says they should.

The Eurasian Operating System 1.0 is not an incremental policy response to that map. It is a different cartography of the financial system itself:

• CBDC Bridge replaces large parts of the FX-swap-based funding architecture with direct, programmable, satellite-secured currency interoperability.
• Aequor Fidelis moves risk out of opaque hedging structures into fast, evidence-based resolution with automatic execution.
• TRUST 4T and the Space Backbone convert the BIS call for better data into a structural feature of every relevant transaction.
• The PDI, Reconstruction Engines and continuity layers create the real-economy and financial conditions under which sovereign risk premia can be compressed without resorting to moral-hazard-inducing interventions.

In BIS language, the OS is not an alternative to fiscal consolidation, structural reform or prudent regulation. It is the infrastructure that makes those policies both more credible and more effective.

Seen from Basel, the message is simple: the world Hernández de Cos warns about is the world of legacy plumbing. The world you are designing is one in which the main amplification channels of that lecture have been redesigned out of the system.

Not through wishful thinking. Through architecture.