Friday, September 3, 2010

In The Global Forex Market, The Ringgit Is A Minnow

The Forex Blog parses the Bank of International Settlements’ Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity (warning: pdf link):

Trading In Emerging/Exotic Currencies Increases

…While emerging currencies as a group accounted for a smaller share of overall activity, certain individual currencies managed to increase their respective shares. The Singapore Dollar, Korean Won, New Turkish Lira, and Brazilian Real all fit into this category. Still other currencies, such as the Indonesian Rupiah and Malaysian Ringgit, also managed impressive gains but account for such a small share of volume as to be insignificant when looking at the overall the picture. Those who were expecting even bigger growth should remember that it’s ultimately a numbers game: the amount of Ringgit it [sic]outstanding is dwarfed by the number of Dollars, so any gains that the Ringgit can eke out are impressive. In addition, when you consider that the overall forex pie is also increasing, the nominal increase in volume for these small currencies was actually quite large...

Having said that, we are talking about a market where average daily turnover has hit over US$4 trillion. In those terms, trading in the MYR is a sideshow, which is understandable given that it can only be traded onshore. Internationalisation of the Ringgit would help volume, but I’m leery of the risk involved considering the sheer size of the market.

But looking at the local data is a bit more comforting (combined spot and swap volume; RM millions):

01_vol

Volume is higher than it was in 2007 when the last BIS survey was released, but off the peaks seen in 2008. Still, forex volume is on an upward trend, and the banking system is far bigger and more sophisticated than it was in the late 1990s. I’m betting internationalisation will be on the table for consideration in the next five years or so – one more step towards being a developed economy.

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