Every three years, the Bank for International Settlements (BIS) releases one of the most important reports in global finance: its Central Bank Survey of foreign exchange markets. It rarely makes headlines, but it offers a clear view of how the financial plumbing of the global economy is really working. The latest survey shows that the global foreign exchange market now trades $9.6-trillion every single day.
To put that into perspective, that is more than five times South Africa’s annual GDP changing hands daily. While this figure may seem abstract, the reality is that this market affects almost every South African business, consumer and policymaker — whether they are aware of it or not. Foreign exchange is not a niche activity reserved for traders.
It is the backbone of global trade, investment and capital flows. Every import, export, offshore investment, dividend payment and foreign loan relies on this market to function. Several important messages emerge from the data.
Read Full Article on Daily Dispatch
[paywall]
First, foreign exchange is by far the largest and most liquid financial market in the world. It dwarfs equity and bond markets and provides the liquidity that allows global trade to operate at speed. Liquidity at this scale also means that shifts in sentiment can transmit rapidly across borders.
Foreign exchange is the bloodstream of globalisation. It enables trade, investment and growth, but it also transmits risk at speed Second, despite regular commentary about de-dollarisation, the greenback remains dominant, featuring in nearly 90% of all FX transactions. The global economy still prices trade, capital and risk primarily in dollars.
For South Africa, this reinforces the reality that movements in the dollar, not just domestic factors, have a direct impact on inflation, funding costs and competitiveness. Third, the survey highlights the continued importance of FX swaps, which remain the largest segment of the market. They are used by banks, corporates and governments to manage liquidity and funding across currencies and time zones.
FX market turnover has grown sharply — up 28% since 2022 — signalling that global trade and capital flows are not slowing down. They are becoming faster and more interconnected. South Africa is a small, open, trade-dependent economy.
We import fuel, machinery, pharmaceuticals and technology. We export commodities, agricultural products and manufactured goods. Every one of these transactions passes through the foreign exchange market.
The rand is also one of the most actively traded emerging-market currencies globally, which brings both advantages and vulnerabilities. On the positive side, South African businesses benefit from deep global liquidity. Importers, exporters and investors are generally able to hedge currency risk and move capital more efficiently than many emerging-market peers can.
[/paywall]
