Asia Closes In On UK In Forex Market Dominance

For weeks now, analysts have warned that the U.K.’s dominance in FX trading is waning. Now, for the first time in more than a decade, the U.K.’s share of the global currencies trading market dropped to 37.1 percent, reports by Financial Times said late last week — that’s down from 41 percent in 2013.

New data from the Bank for International Settlements (BIS) has also confirmed what analysts have been eyeing in recent months, too: Asia is rising to the top of the global FX trading market.

BIS found that, together, Singapore, Tokyo and Hong Kong snagged a hefty portion of the market away from the U.K., now accounting for 21 percent of the sector. That’s up from just 15 percent in 2013.

China Rises

According to the publication, the shift underscores “the growing importance of the Asian region and of China in particular in global trade.”

It’s no coincidence: China has made a conscious effort to propel the renminbi on the global stage as an international currency for years.

“Payments, FX and trade finance are the markers to watch for growth in RMB internationalization,” said SWIFT Director of Securities Markets in the Asia-Pacific Alex Medana in 2014. “The RMB is primarily used as a trade settlement currency, but it is worth nothing that the RMB is steadily making progress as an investment currency.”

A year later, data from the People’s Bank of China found that the country’s currency was then the fifth-most used payment currency, and the second-most used in trade financing. The 2015 Renminbi Internationalization Report found that the rise of the renminbi was due, in part, to China’s currency swap deals with trading partners.

And in recent years, China has made efforts to facilitate cross-border payments to and from the country, in part as an effort to strengthen the yuan. It culminated into the launch of the nation’s Cross-Border Inter-Bank Payments System, and while analysts are divided about its ability to truly internationalize the yuan, the latest statistics suggest China’s efforts are working.

Asia’s Other Contenders

The BIS survey, reports said, shows that the renminbi has doubled its take of the global FX market, surpassing the Mexican peso as the most traded currency among those of developing nations.

The financial crisis and, more recently, the Brexit vote have all hit at the pound’s strength in FX trading, analysts said, and could threaten London as a euro trading hub.

“The events of the last two months suggest there’s a risk of London’s share declining further,” said CLS Bank Chief Executive David Puth in an interview with FT.

But China isn’t taking all of the share away from the U.K.

Singapore is now home to the world’s third-largest FX market, surpassing even China, data from the Triennial Central Bank Survey found. The statistics, gathered last April by the Monetary Authority of Singapore (MAS) and BIS, revealed Singapore handled $517 billion in forex and over-the-counter derivatives in April. It’s a far cry from the U.K.’s $2.4 trillion but still represented a 35 percent increase, researchers said. Meanwhile, volumes in the U.K. and U.S. remain pretty much stagnant.

“Singapore is building on its role as the preeminent marketplace in Asia for global and regional banks, nonbank financial institutions and corporate treasurers to manage their FX risks,” said MAS Deputy Managing Director Jacqueline Loh. “MAS is working with the industry to further enhance price discovery, liquidity and transparency in our FX market by strengthening electronic trading capabilities and anchoring market infrastructure.”

Singapore also beat out Tokyo as a top FX hub, though Japan continues to rank high, as does South Korea, which also saw increases in FX trading volume. The yuan, yen, sterling and South Korean won all saw increases in forex trading, while the euro remained the only currency to see declines among the currencies traded in Singapore, reports said.

The sun looks like it’s setting on the U.K. when it comes to FX trading, but according to FT, the market across the globe is suffering.

That’s likely due to heightened regulation and billions of dollar in fines hitting banks heavily active in the market. According to analysts, volumes of spot currencies trading dropped 19 percent.

“There’s almost no traders left, and the ones that are left are terrified of doing anything,” one industry insider told the publication.