Global Foreign Exchange Overview

The Foreign Exchange Market Overview

In 1998, the estimated daily turnover in the traditional foreign exchange markets amounted to a sum of $1.5 trillion (according to the Bank for International Settlements survey).

Figures for daily turnover in foreign exchange trading

In the early 1970s, the daily turnover in foreign exchange markets was $18 billion.
Transaction volume increased more than fourfold between 1977 and 1980 and fourfold again between1980 and 1983. Trading doubled between 1983 and 1986, and tripled between 1986 and 1989, when it reached the sum of $590 billion. It increased by almost 40% between 1989 and 1992, when it amounted to $820 billion a day. The 1995 daily foreign exchange trading figure of $1.19 trillion represents an increase of 45% on that for 1992 (or 30%, taking into account the depreciation of the dollar). The volume of foreign exchange trade has therefore increased by roughly 83 times in the last 30 years.

This massive increase in the volume of trade is due to the break up in the early 1970s of the Bretton Woods system of fixed parities among major currencies and a move to floating exchange rates. It is also due to the growing liberalisation of financial markets, and the introduction of electronic trading, which makes it possible to deal with a greater volume of trade.

BIS calculated that the global turnover in traditional foreign exchange markets in 1998 had reached an estimated daily average of $1.5 trillion, a growth of 26% on the figures for 1995. This slowing of the rate of growth is attributable to the introduction of the euro, and economic problems in Asia. Global daily turnover in foreign exchange derivatives contracts traded over-the-counter was estimated at $961 billion in April 1998 (up a huge 66% since 1995). Exchange-traded currency derivatives amounted to another $12 billion daily.

The notional amount outstanding on all OTC (over-the-counter) foreign exchange derivatives in June 1998 was estimated at $22 trillion. The gross market value of these contracts was $982 billion. BIS calculated that the turnover in notional amounts of exchange-traded currency futures and options for 1998 was another $3.5 trillion.

Therefore the total figure for daily foreign exchange trading in 1998 can be estimated at $2.473 trillion, or $593.5 trillion for the year.

London is the largest market, for historical and geographical reasons. The Bank of England reported that average daily turnover in April 1998 was $637 billion, 32% of all global foreign exchange market activity. The Bank for International Settlements' April 1998 figures show that this compares with $350.9 billion traded in New York (18%), $148.6 billion traded in Tokyo (8%), $139 billion in Singapore (7%), $78.6 billion in Hong Kong (4%), and $81.7 billion in Switzerland (4%).

OTC foreign exchange derivatives traded in London during April 1998 amounted to $468 billion a day.

The combined figure for foreign exchange and derivatives trading in London in 1998 is therefore estimated to be $1.1 trillion a day.

In June 1999, the Bank of England reported that daily foreign exchange figures had fallen by $8 billion, in response to the introduction of the euro. Trading was $38 billion in the first quarter, down from $46 billion in the same period last year.

The April 1998 figure for foreign exchange transactions in London of $637 billion a day is 37% higher than the 1995 figure ($464 billion), which itself represents a 60% increase on the 1992 figure ($290 billion).

The extent to which this massive increase in the volume of foreign exchange trading can be accounted for by speculative activity is surmised by comparing the figures for the volume of world trade, which show no equivalent increase. In comparison, the annual global trade in merchandise exports and commercial services in 1998 was a mere $6.5 trillion, or 4.3 days of trading on the foreign exchange market. Total foreign exchange trading in 1998, approximately $360 trillion, amounted therefore to approximately 55 times the world trade in merchandise exports and commercial services. The annual global turnover in equity markets in 1995 was only $21 trillion. According to BIS, the world's total official foreign reserves in 1998 amounted only to $1.6 trillion, or just over a day's trading on the traditional foreign exchange markets. In contrast to the $152.8 trillion in foreign exchange, which changed hands in London during 1998, equities to the value of only $5.7 trillion were traded on the London Stock Exchange in the financial year1998-99.

Reserves vs. foreign exchange trading volume (billions of US dollars)

Exports vs. reserves and foreign exchange trading volume

In 1977 the ratio of foreign exchange turnover to exports was approximately 3.5 to 1, it was approximately 64 to 1 by 1995.

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last update June 19, 2006