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This article examines recent trends in global and local foreign exchange (FX) markets, using the 2013 Bank for International Settlements Triennial Survey and the Reserve Bank's foreign exchange turnover data. Global FX turnover continued to increase in 2013, with the US dollar remaining the most-traded currency and the United Kingdom the favoured trading hub. The New Zealand dollar was the tenth most traded currency, with the large majority of these transactions occurring outside New Zealand. FX and cross-currency swaps together accounted for more than half of FX turnover in the New Zealand domestic market, reflecting their use by New Zealand's major financial institutions for hedging and liquidity management purposes.
1 Introduction1
Foreign exchange is the transaction of one country's money for that of another. It facilitates trade in goods and services and in financial instruments, and saving and investment across borders. In other words, in today's highly globalised and interdependent markets, foreign exchange is the oil that keeps the machinery humming.
Foreign exchange transactions largely occur directly between two parties (typically one of these parties is a bank) without passing through a centralised exchange. As a result, the vast majority of foreign exchange flows is only observable to a limited number of parties.
In an attempt to understand trends in foreign exchange, the Bank for International Settlements (BIS) coordinates a comprehensive global survey, formally known as the BIS Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity. The BIS survey has been conducted every three years since 1989, taking a snapshot of activity during the April month of the reporting year.2 In the 2013 survey, 1,300 financial institutions in 53 jurisdictions submitted turnover data. In New Zealand, five financial institutions were asked to take part: ANZ, ASB, BNZ, Deutsche Bank, and Westpac.
Complementing the BIS survey, the Reserve Bank of New Zealand (RBNZ) collects foreign exchange turnover data on a daily basis. These data are a subset of those collected for the New Zealand submission to the BIS survey, but provide more timely information about the trends in New Zealand's onshore foreign exchange market.3
This article discusses the results of the 2013 survey and recent trends in the foreign exchange market, based on both data sources, with a focus on the...