Every day around the world approximately $5.1 trillion in currencies change hands. For context, this is more than Japan’s annual gross domestic product which is the third largest in the world behind the US and China.
The foreign exchange (forex) market is the largest and most liquid class of asset that is traded at this volume – and the market is increasingly becoming global.
The world’s leading centre for foreign exchange trading has traditionally been London, which combines quality infrastructure and an amenable time zone with a financial district that’s already home to dozens of the world’s biggest banks. Yet, the UK has seen a reduction in its share of global forex trading in recent years – from a 41% share of global trading in 2013 to 37% in the most recent report in 2016.
Now, attention has refocused on the promise of forex in Asia as many emerging market currencies in the region show strong fundamentals for growth.
There are signs this shift has already begun. The combined share of global forex intermediation of Tokyo, Hong Kong and Singapore amounted to 21% of global trading in April 2016, up from 15% in 2013. While it is still early days for China’s forex markets, the renminbi has become the eighth most actively traded currency, up from 17th in 2010.
This is important because the size and scale of Chinese growth is prompting significant global investment, particularly in China’s renminbi. And while the City of London’s financial hub is long accustomed to working and trading in reserve currencies across traditional hubs in Tokyo and New York, forex traders searching for growth are beginning to look toward Hong Kong as well as Singapore, Mumbai, and Indonesia.
To facilitate this move, China is increasingly aiming to smooth the path for companies around the world to use the renminbi more easily through adoption of global standards and innovation in financial technology. Put simply, technological infrastructure is required to support its growth.
The importance of connectivity in forex trading, tracking and reconciling payments, and managing funds cannot be understated. For example, the speed that a trader can access market information, act on it to place an order, and have that order filled are central to their success.
Michael Moon, Head of Payments Markets APAC at SWIFT, notes that: “The key thing that needs to occur for the renminbi to have higher levels of usefulness or utility, is it needs to have connectivity around the world. We see a role for financial technology in enabling and facilitating that last mile of renminbi connectivity.”
Key to enabling this utility for forex trading is reliable connectivity across liquidity centres. Many organisations aim to achieve low latency by using infrastructure as close to their target market as possible, in this case China. But while infrastructure that’s close by is a good start, infrastructure that’s in-country is optimal.
That’s why Telstra is best-placed to help organisations through our extensive intra-Asia subsea network, in-country points of presence like data centres and colocation, and local support. These capabilities have recently been recognised by Gartner’s 2018 Critical Capabilities for Network Services Asia/Pacific report, where Telstra received the highest score for High Performance Network use cases.
In China, Telstra PBS is the largest foreign joint venture VPN provider licensed to provide IPVPN and network services to over 20 provinces. We operate in 36 cities in China, with colocation and data centre services in five key regional hubs connected via Telstra’s Programmable Network SDN platform.
Importantly, we also have seven offices with staff on-the-ground in China across service, operations and account management. We have been operating in China for more than a decade, creating long-term relationships with the government and local carriers to simplify connectivity in the country.
International connectivity is important to the development of the renminbi as an international currency following its adoption by the International Monetary Fund’s (IMF) reserve currency basket in 2016, and as Chinese e-commerce giants like Alibaba and Tencent explore international expansion. Their rapid growth is fueled by China’s online payment systems such as Alipay and WeChat Pay. China’s central bank has also taken a keen interest in digital currency, and has set up a team with a view towards launching a digital legal tender in the future.
Through high performance, low latency connectivity and in-country investment, Telstra can help forex trading institutions connect to China efficiently and help take advantage of the promise trading across fast-growing Asian markets holds.