Finally, we look at the FX market structure as an important reflection in developments in the trade and capital flows discussed in the previous sections.
Based on the recent BIS data, the share of the USD leg on the OTC FX market’s turnover has been stable in the last couple of years despite its somewhat declining role in assets, liabilities, and trade (Figure 31). This may mean that despite the possible decline in the usage of USD on the organised exchanges, the dollar has retained its role as the primary settlement currency in the peerto-peer trade.
At the same time, the relatively flat share of the USD leg in global OTC FX transactions doesn’t mean that the overall structure is rigid. Looking at the evolution of the FX market turnover over the last nine years (Figure 32), Asian currencies, including RMB, HKD, SGD, KRW, INR, TWD are noticeably gaining ground, but interestingly they don’t seem to be pushing out USD. They are rather competing for the market shares of other DM and EM currencies, including EUR, AUD, JPY, RUB, TRY, and MXN.
In a sense, the evolution of FX market transactions is painting a picture similar to the situation seen in global invoicing and capital flows: the US dollar has generally retained its global role, while the rise of CNY and some other currencies is tightening the competition among the regional currencies. We take this as a sign of shifting preferences at the regional level and potential demand for an alternative to USD, but it doesn’t seem at this point that such an obvious alternative has emerged.
