How important is the rand in a global context?

With the JSE in 18th place with regard to market capitalisation, the rand punches above its weight internationally, says Mike Schüssler an economist at Economists.co.za.

He notes that every three years, the Bank of International Settlements compiles a survey of all forex dealers in over 50 countries where free trade in currencies takes place.

“While the US and UK dominate world trading of foreign exchange, South Africa was the largest emerging market regarding volume of foreign exchange traded for a number of years from 1998.

“This is a good indicator of the overall importance of a country in the world of finance since bonds and stocks get traded in the local currency – resulting in trade between a foreign currency and the local one,” said Schüssler, in an article on Moneyweb.

According to Schüssler, South Africa has the 25th largest forex turnover, and is fifth largest among emerging markets in the dollar value of forex transaction turnover.

China, which had a very small and closed forex market, has in recent years leapt past all the other emerging markets in size and importance, but accounts for just over 1% of the total forex turnover of the world.

In South Africa, the daily turnover is $21 billion daily. Globally, forex turnover is in the region of $7 trillion a day, the economist said.

“So, while South Africa is important in Africa and the biggest by far on the continent, it is still very small on a world scale. However, many developed economies such as Ireland do not have the turnover that SA has in the forex market.”

The rand, Schüssler said, is an important emerging market currency – sometimes the most important – but like several South African indicators, it is being overtaken by other developing markets such as China, Russia and India.

“South Africa will always be a deep and liquid market in the forex game but is probably going to be overtaken by Brazil in the April 2019 survey on the total turnover and importance of forex volume. SA will then be the smallest of the Brics markets, whereas in 1998 it was the biggest.

“However, forex volume is a bit of a vanity indicator once there is enough turnover in a market. I believe around $12 billion is probably enough for a liquid market to function,” Schüssler said.


Read: A stronger rand in February? The data suggests so

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How important is the rand in a global context?