Indian Rupee Gains Share In Global Forex Trade, Shows BIS Survey
The survey, released every three years, shows that trading of Indian Rupee in the London markets has surged.
The Indian currency gained share of the global foreign exchange trade between 2016 and 2019, showed the latest edition of the Bank of International Settlements Triennial Central Bank Survey. While the increase in share of trading in the Indian rupee is positive, the survey data also showed a widening gap of trading of Indian rupee products offshore and in India.
The BIS survey, released every three years, is the most comprehensive reading of the global foreign exchange market.
The 2019 survey, released on Monday evening, showed that over-the-counter trades in the Indian rupee accounted for 1.7 percent of the total global forex turnover, compared with 1.1 percent in the 2016 survey. India’s rank of 16 compared with 18 in the previous survey.
Trading in foreign exchange markets reached $6.6 trillion per day in April 2019, up from $5.1 trillion three years ago, the survey showed. The share of emerging market currencies rose to 25 percent. “Turnover in the renminbi, however, grew only slightly faster than the aggregate market, and the renminbi didn’t climb further in the global rankings. It remained the eighth most traded currency, with a share of 4.3 percent, ranking just after the Swiss franc,” the BIS Survey said.
Increase In Trading Of Forwards
The survey noted that trading in outright forwards rose 43 percent to $999 billion per day. This surge in trading in forwards holds true both globally and for India.
The average daily volume for Indian rupee outright forwards stood at $62.72 billion in April 2019 compared with $29.91 billion in spot market trades.
Within this category, non-deliverable forwards or NDFs accounted for a significant share of the increase in trading between 2016 and 2019. This, the BIS said, reflected the strong activity in Korean won, Indian rupee and Brazilian real NDF markets.
The US Dollar/Indian Rupee NDF volumes increased 3x between 2016 and 2019. It stood at ~$50 billion in 2019 as against ~$16.4 billion in 2016, thus accounting for 82 percent of total outright forwards in USD/INR in 2019 as against 74.3 percent in 2016.Madhavi Arora, Economist - Forex And Rates, Edelweiss Securities
London Trumps Mumbai
Fears of a shift in trading of Indian currency contracts to offshore locations were reiterated by the 2019 BIS Survey.
The data showed that average daily volume of rupee trading in India was $34.49 billion. In contrast, the average daily trading volume in the U.K. was $46.82 billion, while it stood at $14.40 billion in the U.S. and $12.57 billion in Hong Kong. The data, the BIS, explained, includes spot transactions, outright forwards, foreign exchange swaps, currency swaps, options and other products.
The shift in trading in the local currency towards offshore markets is increasingly a cause of concern for Indian policymakers.
A recent committee, headed by former Reserve Bank of India deputy governor Usha Thorat, had recommended a series of steps to improve the attractiveness of the onshore markets. The panel suggested longer trading hours, permission to undertake currency derivative transactions upto a limit without underlying exposure and aligning tax and documents with international centres.
The Thorat committee had flagged off the relationship between offshore markets, particularly the non deliverable forwards market, and the local spot currency markets.
“During the last two stress episodes (the taper tantrum and the 2018 emerging market crisis), the relationship turned unidirectional, with the NDF market driving onshore spot and forwards,” the committee found, while cautioning that the influence of the offshore markets can reduce the efficacy of domestic policies intended to curb currency volatility in times of stress.