Johannesburg – The rand is the 20th most traded currency, making up 1% of the world’s daily currency trading, according to a survey by the Bank for International Settlements (BIS).
The survey is conducted every three years, which looks at the size and structure of the global foreign exchange market. The survey is based on data obtained from 53 central banks, and about 1 300 banks and other foreign exchange dealers, explained Kevin Lings, chief economist at Stanlib.
South Africa slipped two places from 18th position in 2013. South Africa’s highest ranking was 10th in 1998. It dropped to 13th position in 2001. The last time it ranked 20th was in 2010.
However, this drop does not mean that trade in the rand has “dwindled”, said Lings. “In fact the growth in the value of rand traded globally has been very impressive.”
But trade in other emerging market currencies such as China, Russia, Mexico, and Turkey has been faster, he explained.
South Africa only accounts for 0.3% or $21bn of the world’s daily foreign exchange market turnover, despite a share of 1% of the world’s daily currency trading. This is because more than half of all the daily trade in the rand takes place outside of South Africa, mostly in the UK, by non-residents in the country.
The dollar-rand trade pair accounts for 0.8% of world currency trade. It accounts for 81% of the entire rand market, said Lings. “Overall, despite the rand’s low market share when measured on a global scale, the currency actually trades much better than would be expected given the size of the South African economy relative to the world economy,” he said.
This shows the rand exchange market is relatively liquid and fairly highly traded, which is good for business and investment activity, said Lings. However, higher liquidity attracts unwanted attention, which can lead to an increase in speculative activity and currency volatility, he explained.
Currency composition of world foreign exchange market
The Chinese renminbi, was the most traded emerging market’s currency and is also the world’s eighth most traded currency. “The rise in the share of renminbi was primarily due to the increase in trading against the US dollar,” said Lings. The value of global trade in the renminbi increased by 103% from $120bn a day to $243bn, said Lings.
The US dollar remains the dominant globally traded currency, said Lings. This is followed by the euro.
Largest foreign exchange markets in the world
READ: How banks allegedly colluded on currency trades
The Competition Commission recently referred a case of currency price collusion to the Competition Tribunal. A total of 17 banks were implicated, three of them were South African banks, Investec, Standard Bank and Absa.
The Commission found that from at least 2007, the respondents had a general agreement to collude on prices for bids, offers and bid-offer spreads for the spot trades in relation to currency trading involving US dollar/rand currency pairs. Respondents also manipulated the price of bids and offers through agreements to refrain from trading and creating fictitious bids and offers at particular times.
READ: Citibank gets date for price-fixing hearing
Of the implicated banks, the hearing of Citibank’s settlement agreement of R69.5m with the Commission will be heard in March.
The Commission is not seeking an administrative penalty against Absa, which was one of the banks that were investigated. Absa tipped off regulators about the price-fixing and suspended two of its traders. Absa CEO Maria Ramos has apologised for the bank's role in the cartel.
Investec said it will work with the competition authorities with regard to their investigation.Read Fin24's top stories trending on Twitter: