Archive for December 8, 2010
By THE NUMBERS:
Currency Trading$6 trillion$547 trillion$1,460 trillion
World GDP$4 trillion$32 trillion$62 trillion
Exports*$0.7 trillion$12 trillion$25 trillion
* Goods and services combined.
WHAT THEY MEAN:
Money is about 2600 years old, and currency trading not much younger: coins were invented around 600 BC in the Kingdom of Lydia in present-day Turkey, perhaps under the still-famous Croesus, and adopted in the next century by Greeks and Persians. Ever since then travelers have been exchanging money. The Gospels’ account of the money-changers in the Jerusalem Temple is typical of the latter use: the people in question exchanged out-of-town pilgrims’ Roman, Greek and Persian coins for the half-shekel coins, minted in Jerusalem and Tyre, which paid for Temple operations.
But until fairly recently — as currency management moved from medieval strongboxes to 18th-century letters of credit and 20th-century wiring — the for-ex business remained a modest one, mainly done to cover shipping, travel, and import/export business. A generation ago, the Bretton-Woods currency management system was still the recognizable descendent of the metals-based Temple business: Launched in 1944, it fixed the value of all major currencies to the dollar (with changes allowed under IMF guidance) and tied the dollar itself to gold at $35 an ounce. In that long-ago era, currency trading was about 10 times the value of exports and roughly equal to the $6 trillion world GDP.
Since the Bretton Woods system fell apart in 1971 (as gold began flowing out of the United States and as trading partners refused to shift the currency rates) the values of most major currencies have been set by international currency markets, and most currency trading is for hedging and futures markets. This has made today’s gigantic for-ex business easily the largest market in the world: the most recent triennial report on foreign exchange markets from Bank for International Settlements, out this month, finds that sometime in 2007 or 2008, currency trading surpassed the quadrillion-dollar mark and now totals about $1.46 quadrillion per year, or $4 trillion daily. This is now nearly 25 times the $62 trillion world GDP; 60 times the $25 trillion in annual goods and services exports; and 300 times the $5 trillion in actually issued currency in physical circulation. Some particulars:
Scale and rate of growth: Daily currency turnover topped $1 trillion daily in the early 1990s, hit $2 trillion around 2000, reached $3 trillion — and the annual quadrillion mark — around 2008 and is now $4.0 trillion a day.
Trading sites: The United Kingdom is the world’s largest currency-trading center, with nine City of London banks accounting for 28 percent of all world currency trading and others handling another 9 percent. New York ranks second with 18 percent of the for-ex business, or about $265 trillion annually; Tokyo, Singapore, Hong Kong and Sydney follow at about 5 percent each.
The currencies: American dollars figure in 84.9 percent of all world currency trades. This is down from the 89.9 percent rate a decade ago; the euro, yen and Australian dollar have gained share as the dollar has slipped a bit.
And a table, with all figures estimates for 2010:
Currency turnover$1,460 trillion
World GDP$62 trillion
Total world exports$25 trillion
Currency reserves$8.4 trillion
Circulating currency$5 trillion
Source: World Fact