The triennial survey published by the Bank for International Settlements (also known as the bank for the central banks) revealed that currencies of emerging market economies further increased their share of overall global FX turnover. Piotr Matys - Emerging Markets FX Strategist at Rabobank, offered his take on the trend.
Key Quotes:
“Overall, the global share of EM currencies increased by around 4% to 25% between April 2016 and 2019 extending the trend observed in previous surveys. This trend reflects the growing prominence of emerging markets in global trade. While many EMs are exporters who receive hard currencies and exchange at least part of this income to a local currency, demand amongst consumers for Western goods and services is another reason why turnover of EM currencies continues to grow.”
“Essentially, emerging economies became more prominent trading partners. They are going through a rough patch due to the trade war, but looking from the long-term perspective it is reasonable to assume that GDP growth in the EM space is likely to outpace developed economies. The share of EM currencies in global turnover will continue to rise accordingly.”
“It is not, however, only about supply and demand related to exchange of goods and services between EMs and DMs.”
“The prospect of major central banks keeping interest rates at historically record low levels implies that the popularity of carry trade may increase amongst investors based in developed countries - especially if more of them become like Japan. That said, we do not expect a full-scale renaissance of the carry trade as long as global trade uncertainties prevail.”
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