The BIS’s Currency Turnover Toss
The Bank for International Settlements released preliminary triennial foreign exchange and over the counter derivative survey figures as of April continuing decades of tracking these trends for central bank reference. The G20 endorses this data collection from over 50 countries and one thousand banks and dealers, with trades reported in unconsolidated form. Daily currency turnover averaged $6.5 trillion compared with $5 trillion in 2016, with the dollar on one side of almost 90% of transactions, followed by the euro (30%) and yen (15%). Emerging market share rose 4% to one-quarter the total, although the Yuan portion stayed in eighth place overall tied with the Swiss franc. Spot fell to 30% and swaps picked up to almost half, with non-deliverable forwards (NDFs) also increasing. “Other financial institution” engagement with counterparties like hedge funds was over half of volume, and sales desks in the US, UK, Hong Kong, Singapore and Japan took 75% of operation. Japanese retail traders hiked bets on high-yield developing units including the Brazilian real, Turkish lira and South African rand, while the pound, Australian and Canadian dollars combined also came to one-quarter the global sum. Yuan trading was $285 billion on a 95% dollar pair, with the Korean won, Indian rupee, and Mexican peso ascending the ranks at $100 billion plus. FX swaps were over $3 trillion and mostly in less than one week maturities, with forwards at medium term up to three months. NDFs drove the latter uptick, concentrated in Brazil, Korea and India markets. Prime broker handling was $1.5 trillion/day, with traditional institutional investor lines down. Asian financial centers had 20% of the business, with mainland China processing almost $150 billion as the number eight biggest location. Cross-border versions fell from two-thirds to half the amount, the lowest level this century.
Interest rate derivatives more than doubled to $6.5 trillion from $2.7 trillion on increased hedging and positioning, mostly in short-term contracts. Forward and swap agreements accounted for 60%, and dollar and euro-denominated activity were respectively half and a quarter of the total. The Yuan and won together were 1%, and Hong Kong had 5% of the overall market. So-called back to back and compression trades were main contributors, with the latter designed to keep net exposure constant. Swaps were again the leading category generally at two-thirds the amount, and the Mexican peso portion was roughly equal at 0.5%. Eastern Europe interest quadrupled to $20 billion, and the Russian ruble came in over $1 billion daily. The UK intermediated half of derivatives, with Europe’s other hub France, only at 1.5%, around the same level as Australia, Canada and Japan. Hong Kong benefited from Australia dollar contracts, and Singapore’s control dipped slightly to 1.5%. China, Korea, India and South Africa had 0.1-0.2% claims, reflecting offshore EM preference, the BIS noted. The final calculations will be presented in December amid clamor over undue dollar strength and dominance in trade and capital flows, as developing currencies and financial markets underperform and face US government competitive and geopolitical maneuvers. The next Triennial report is also widely expected to track Bitcoin and its peers as coverage turns over to new technology.
