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Foreign exchange trading in emerging currencies: more financial, more offshore

Author

Listed:
  • Robert McCauley
  • Michela Scatigna

Abstract

Foreign exchange turnover evolves in a predictable fashion with increasing income. As income per capita rises, currency trading cuts loose from underlying current account transactions. In parallel, an increasing share of trading in the currency takes place outside the home country. At given income levels, moreover, currencies with either high or very low yields attract more trading, consistent with their role as target and funding currencies in carry trades.

Suggested Citation

  • Robert McCauley & Michela Scatigna, 2011. "Foreign exchange trading in emerging currencies: more financial, more offshore," BIS Quarterly Review, Bank for International Settlements, March.
    • Handle: RePEc:bis:bisqtr:1103h
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    References listed on IDEAS

    as
    1. Gabriele Galati & Alexandra Heath & Patrick McGuire, 2007. "Evidence of carry trade activity," BIS Quarterly Review, Bank for International Settlements, September.
    2. Corrinne Ho & Guonan Ma & Robert N McCauley, 2005. "Trading Asian currencies," BIS Quarterly Review, Bank for International Settlements, March.
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    Cited by:

    1. Yin-Wong Cheung & Robert N McCauley & Chang Shu, 2019. "Geographic spread of currency trading: The renminbi and other EM currencies," GRU Working Paper Series GRU_2019_011, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    2. Daniela Gabor, 2018. "Goodbye (Chinese) Shadow Banking, Hello Market†based Finance," Development and Change, International Institute of Social Studies, vol. 49(2), pages 394-419, March.
    3. Weber, Christoph S., 2019. "The effect of central bank transparency on exchange rate volatility," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 165-181.
    4. Morten Bech, 2012. "FX volume during the financial crisis and now," BIS Quarterly Review, Bank for International Settlements, March.
    5. Eichengreen, Barry & Mehl, Arnaud & Lafarguette, Romain, 2016. "Cables, Sharks and Servers: Technology and the Geography of the Foreign Exchange Market," CEPR Discussion Papers 11053, C.E.P.R. Discussion Papers.
    6. Ran Xiao, 2019. "Essays on Price Discovery and Volatility Dynamics in Emerging Market Currencies," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 5-2019.
    7. Dagfinn Rime & Andreas Schrimpf, 2013. "The anatomy of the global FX market through the lens of the 2013 Triennial Survey," BIS Quarterly Review, Bank for International Settlements, December.
    8. Eichengreen, Barry & Lafarguette, Romain & Mehl, Arnaud & Ferrari Minesso, Massimo, 2023. "Technology and the geography of the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 131(C).
    9. Richard M Levich & Frank Packer, 2015. "Development and functioning of FX markets in Asia and the Pacific," BIS Papers chapters, in: Bank for International Settlements (ed.), Cross-border Financial Linkages: Challenges for Monetary Policy and Financial Stability, volume 82, pages 75-132, Bank for International Settlements.
    10. He, Dong & Yu, Xiangrong, 2016. "Network effects in currency internationalisation: Insights from BIS triennial surveys and implications for the renminbi," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 203-229.
    11. Ma, Guonan & McCauley, Robert N., 2013. "Is China or India more financially open?," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 6-27.
    12. Willy Chetwin & Tim Ng & Daan Steenkamp, 2013. "New Zealand’s short- and medium-term real exchange rate volatility: drivers and policy implications," Reserve Bank of New Zealand Analytical Notes series AN2013/03, Reserve Bank of New Zealand.
    13. Chun-Ming Chien & Cheng-Yih Hong & Jian-Fa Li, 2014. "Spillover Effects Of Tourism Policychanges On Hospitality Industries," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 8(2), pages 111-124.
    14. Wang, Kai-Li & Fawson, Christopher & Chen, Mei-Ling & Wu, An-Chi, 2014. "Characterizing information flows among spot, deliverable forward and non-deliverable forward exchange rate markets: A cross-country comparison," Pacific-Basin Finance Journal, Elsevier, vol. 27(C), pages 115-137.
    15. Claudio Borio & Piti Disyatat, 2011. "Global imbalances and the financial crisis: Link or no link?," BIS Working Papers 346, Bank for International Settlements.
    16. Maria Socorro Gochoco-Bautista & Jianxin Wang & Minxian Yang, 2014. "Commodity Price, Carry Trade, and the Volatility and Liquidity of Asian Currencies," The World Economy, Wiley Blackwell, vol. 37(6), pages 811-833, June.
    17. Andreas Schrimpf & Vladyslav Sushko, 2019. "Sizing up global foreign exchange markets," BIS Quarterly Review, Bank for International Settlements, December.
    18. Christian Upper & Marcos Valli, 2016. "Emerging derivatives markets?," BIS Quarterly Review, Bank for International Settlements, December.
    19. Megan Garner, 2017. "Foreign Exchange Derivative Markets in Asia," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 77-83, December.
    20. Mashkoor, Asim & Ahmed, Ovais & Herani, Dr. Gobin, 2015. "The relationship between Foreign Currency trading and Economic Development: A case Study of Pakistan," MPRA Paper 64482, University Library of Munich, Germany.
    21. Doukas, John A. & Zhang, Hao, 2013. "The performance of NDF carry trades," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 172-190.

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    More about this item

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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