Every three years since 1989 the Bank for International Settlements (BIS) produces a survey which is acknowledged as the most informative on the size and structure of the global foreign exchange markets. It relies on global Central Banks to collect data from their own banking system which totals approximately 1,300 banks and it is then collated by BIS.
Global Turnover and Currency Pairs
Since the last survey in 2010, FX market activity per day has increased from US4$ trillion to US$5.3 trillion in 2013. The growth in global turnover figures are telling when you go back to 2003 – figures at current exchange rates:
2003 – 2007 – 72% increase
2007 – 2010 – 19% increase
2010 – 2013 – 35% increase
Although they are percentage figures it is not surprising that between 2003 and 2007 there was a significant increase in economic activity especially in the US$ which is the most traded currency. The Global Financial Crisis followed this period and subsequently the percentage increase dropped below the 35% average that has been evident in past triennial surveys. The recent increase does signify a recovery of sorts and a return to the norm.
Within the last three years the make-up of global FX trading has changed with the trading activity of the Japanese Yen increasing markedly as well as currencies in emerging markets namely the Mexican peso and the Chinese renminbi. However the US dollar remains unchallenged as the dominant currency on the global economy – foreign exchange deals with the US$ on one side of the transaction represented 87% of all deals. (Remember because there are two sides to each transaction so total trades add up to 200%). In the USD/JPY pair there was a significant increase in activity (70% from last survey) and at 18.3% they are closing in on the lead pair USD/ EUR that stands at 24.1% see graph. This is one of the reasons for the increase in the Yen to 23% of Global FX.
Although the Euro is the second most important currency its role has diminished with the debt crisis in Europe. Since 2010 it has lost 6% of the Global FX market and now stands at 33.4% the lowest value since the introduction of the common currency in 2002. Furthermore in currency pairs it has increased much less than its USD equivalent, which dominates the top ten pairings.
With the relatively high interest rates over the last three years the Australian and New Zealand dollars have sustained their increase in global FX trading. The Reserve Bank of Australia has had its cash rate at very high levels – 4.75% from 3rd November 2010 to 2nd November 2011, which has attracted ‘hot money’. However the presence of the Canadian dollar, the Swedish krona and the Swiss franc has decreased in activity.
The above is a brief extract from an article published in this month’s econoMAX – click below to subscribe to econoMAX the online magazine of Tutor2u. Each month there are 8 articles of around 600 words on current economic issues.