UK Losing Ground As The World’s Top Forex Market

The UK has been considered to be the most dominant market for foreign exchange (forex) transactions. But a recent survey has revealed that for the first time in over a decade, the UK’s share in forex transactions worldwide has dipped below 40 percent to 37.1 percent. In 2013, the UK’s share in forex trading was 41 percent.

The Bank for International Settlements (BIS) conducts this survey once in every three years. The 2016 survey has shown that Asia is moving to the top spot in the global forex trading. According to the survey results, Asian markets comprising Singapore, Hong Kong and Tokyo have together taken away market share from the UK. These markets now account for 21 percent of the market rising from the 15 percent share they had in 2013.

The report has re-emphasized the growing importance of Asian countries, especially that of China in the global economy. China has been taking steps to bring its renminbi currency to the forefront. SWIFT Director of Securities Markets for Asia-Pacific Alex Medana had commented in 2014 that although the renminbi has been largely used for trade settlements, it was fast developing as a currency for investments as well.

China has also encouraged the use of the yuan for cross-border payments, setting up the nation’s Cross-Border Inter-Bank Payments System in a bid to boost the internationalization of the yuan. The 2015 Renminbi Internationalization Report has stated that the rise of the renminbi is largely due to extensive currency swap deals.

According to the BIS survey, the share of renminbi has almost doubled in forex trading, surpassing the Mexican peso as the number one traded currency amongst developing countries. With the recent Brexit vote threatening London’s status as a financial hub, there is a chance that London will further concede ground to the Asian markets.

The financial center that has gained the most from UK’s loss has been Singapore. Singapore came in third in terms of being the world’s largest forex market beating markets like Tokyo. With volumes worth $517 billion in forex and over-the- counter derivatives, Singapore is still far behind UK’s forex trade of $2.4 trillion but is growing fast while markets in UK and U.S have remained stagnant.

Market participants have said that beyond UK’s loss, the industry itself is in fact slowly declining. Volume of spots has dropped by 19 percent in the recent past. Experts have pointed to increased government scrutiny and regulation as well as banks being fined billions of dollars as reasons for the decline.

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