Every three years, the Bank of International Settlements releases its ‘Triennial Central Bank Survey”. 2016 is one of those lucky years, and we’ve been due a survey, and it’s out: Triennial Central Bank Survey of foreign exchange and OTC derivatives markets in 2016.
Now I realise that it might sound boring, and some of it is. But there are some numbers that I think are incredibly interesting – and also, completely unfamiliar to we-people-on-the-street.
Here’s the thing: when we think about the Rand as a currency and how it trades, we assume that it must somehow involve South African banks. The ZAR is, after all, South Africa’s currency right? And doesn’t the South African Reserve Bank sort of control that? Rand-printing and that kind of stuff?
So before I get to the survey, let me start with the SARB.
The Forex Market in South Africa, according to the SARB
Every month, the SARB publishes a monthly release of statistical data. I’m going to use the release from September, so most of the data is from August.
In August, every day, approximately $21 billion worth of foreign currency changed hands. For the whole of August, that means that the amount of forex traded was larger than the South African economy’s GDP.
Here’s a pie-chart breakdown of daily trades:
So that’s the total amount of daily trade flowing through the South African banking system:
- About $15.9 billion on trades involving the Rand (those are the spots, forwards and swaps); and
- About $5.6 billion on trades that involve two non-Rand currencies (“transactions in third currencies”).
It’s not really important to know what the different types of ZAR-trades are, but here’s a quick summary:
- “Spot” transactions are on-the-day transactions (like when you go to a Bureau de Change to change money – that’s a spot trade);
- “Forward” transactions are contracts to change money at some future date (so basically, the bank does the exchange today, holds the currency you’ve ordered for you, and then you do the exchange on the date you’ve decided on); and
- “Swaps” are a combination of a spot and a forward, bought at the same time with offsetting sides of the trade.
But put that aside, because the important point is that the SARB is aware of $15.9 billion worth of ZAR-related trades going through the South African banking system every day.
The Forex Market in South Africa, according to the Bank of International Settlements
As of April 2016, the ZAR was the 20th most traded currency in the world, accounting for 1% of total forex trade. That’s 1% of a $5.1 trillion-a-day forex market.
In case you’re wondering, that’s a lot more than $15.9 billion. It is, in fact, a total daily trade of $51 billion.
- $41 billion of daily turnover takes place between the US dollar and the SA Rand;
- $3 billion of daily turnover takes place between the Japanese Yen and the SA Rand (?!);
- Yes, the calculation above is not wrong – the ZAR accounts for $51 billion of daily trade; and
- The Bank of International Settlements agrees that only $21 billion of daily trade flows through the South African banking system.
This means that $35 billion of daily trade in the Rand takes place completely outside of the South Africa’s economy.
That’s almost 70% of daily ZAR trades.
I’m just going to leave that there, and allow you to decide how much the ZAR is influenced by speculative trading.
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.
teamed209 October 18, 2016 at 19:12
This makes sense, the only thing that could drive this much volatility in the rand would be speculative position takers. What would be interesting is to see how this compares to the other top 20 traded currencies. I suspect that any liquid currency market would be exposed to this.Reply
Jayson October 19, 2016 at 07:21
Agreed. Check out the next day’s post, where I tried to answer this: “Does the rand bat above its league?”Reply