Singapore Overtakes Japan as Asia’s Top Foreign-Exchange Hub

By Kristine Aquino - Sep 6, 2013

Singapore overtook Japan as Asia’s biggest foreign-exchange center for the first time as trading surged in the past three years, the city’s central bank said, citing a survey by the Bank for International Settlements.
The city’s average daily foreign-exchange volume increased 44 percent to $383 billion as of April from $266 billion in the same month in 2010, the Monetary Authority of Singapore said in a statement yesterday. The average interest-rate derivatives volume climbed 6 percent to $37 billion over the same period, the highest in the region after Japan, it said.
“Singapore has definitely established itself as a hub for foreign-exchange trading,” Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Singapore, said before the release of the statement. “Part of this emergence is due to the increasing importance of Asian currencies, and Singapore’s time zone is well-suited for that.”
The Chinese yuan entered the top 10 most-actively traded currencies, according to the Bank for International Settlements or BIS. Singapore’s increase in ranking puts it behind only the U.K. and U.S. in the $6.67 trillion global foreign-exchange trading market, the BIS said.
The city’s currencies trading expanded as the government offered incentives to boost its financial markets, which also led to a surge in the nation’s fund management industry, where more than 500 asset managers oversee about $1.1 trillion.

Growing Strength

“Our growing strength in foreign exchange is a key complement to the development of capital market and asset management activities,” Jacqueline Loh, deputy managing director at the Monetary Authority of Singapore, said in the statement. “It will also better position our financial center to serve the investment and risk management needs of financial institutions and corporates throughout Asia.”
Foreign-exchange trading worldwide surged to an average $5.3 trillion a day in April 2013, boosted by greater yen volumes, the BIS said. Trading increased 33 percent since the same period in 2010, the organization said, citing a survey of currency traders it runs every three years. The yen had the biggest jump in trading activity among major currencies, while the euro’s role as the second-most traded currency was reduced.
The yuan was the ninth-most traded currency, up from 17th three years earlier, according to the BIS.

‘Prominent Trend’

“This is the beginning of what we can expect to be a very prominent trend,” Sacha Tihanyi, a senior currency strategist at Scotiabank in Hong Kong, wrote in an e-mailed note to clients today. The next survey will probably show a greater increase in yuan trading as a proportion of global turnover, according to Tihanyi.
While trading increased in Singapore, the city’s currency was ranked 15th, down three notches from 2010, according to the BIS. It was the seventh most-traded currency in 1998.
Foreign-exchange trading in Singapore is one-seventh the size of that in the U.K. and less than a third of the U.S. total. The U.K. has 41 percent of the global market, followed by the U.S. with 19 percent, according to the BIS, which is the record-keeper of the world’s central banks. Singapore has a 5.7 percent share, followed by Japan’s 5.6 percent and Hong Kong’s 4.1 percent.
“Foreign-exchange market activity has become ever more concentrated in a handful of global financial centers,” the Basel, Switzerland-based BIS said in its report yesterday. “The vast majority of global FX trading in 2013 has occurred via the intermediation of dealers’ sales desks in five jurisdictions.”

Japan ‘Rejuvenation’

While Japan’s share of foreign-exchange trading dropped, yen transactions jumped 63 percent between 2010 and 2013, the biggest increase in activity among major currencies, according to BIS data. Yoshihide Suga, the chief cabinet secretary in Japanese Prime Minister Shinzo Abe’s administration, said the BIS report showed Tokyo’s financial markets are still growing and the acceleration of yen trading across the globe.
“The government recognizes that the rejuvenation of the Japanese economy, including the rejuvenation of markets, is extremely important,” Suga told reporters in Tokyo today.
The Reserve Bank of Australia said the nation’s currency remains the fifth-most traded in the world, with its share of global turnover climbing one percentage point to around 8.5 percent, citing data compiled by BIS. While the Australian dollar versus the greenback remains the fourth-most traded currency pair, total turnover in Australia’s foreign-exchange market has declined about 5 percent since April 2010, the RBA said today in a statement on its website.

Regional Sell-off

The Singapore dollar traded at S$1.28 as of 1:39 p.m. local time. It has fallen 2.8 percent against the greenback in the past three months, the smallest drop among key Asian currencies tracked by Bloomberg, as investors withdrew funds from developing markets. About $44 billion has been pulled out of emerging-market stock and bond funds globally since the end of May, data provider EPFR Global said on Aug. 23.
Foreign-exchange average daily trading volume in Singapore was $326 billion in April 2013, a 6.2 percent increase from October 2012, according to a semi-annual survey published by the Singapore Foreign Exchange Market Committee on July 29.
“The government has also been encouraging more and more large financial institutions to set operations here,” ANZ Bank’s Goh said.
Switzerland’s central bank said two months ago it set up a new Singapore office to ease round-the-clock management of its exchange-rate cap, end the need for the Zurich trading desk’s night shift and help manage its investments in Asia. Singapore’s position as a regional bond-trading center led to its selection for the first foreign branch in the Swiss National Bank’s 106-year history, President Thomas Jordan said July 11.