BIS Triennial Survey 2004

The Triennial Central Bank Survey conducted in April 2004 by 52 central banks and monetary authorities and coordinated by the Bank for International Settlements (BIS) was the second comprehensive assessment of foreign exchange and derivatives market activity since the introduction of the euro in 1999. The preliminary overall statistics published today by the BIS provide information on the use of the euro in foreign exchange and derivatives markets. For the first time, the BIS has also collected separate data for trades conducted in the euro area as a whole. The final overall findings of the survey will be published in spring 2005.

The BIS is today publishing preliminary global results (the BIS press release is available at www.bis.org), while the national central banks of the Eurosystem are releasing their own national results simultaneously.

The 2004 survey showed a strong increase in overall average daily turnover in global foreign exchange market activity (from USD 1,200 billion in 2001 to USD 1,880 billion in 2004), reversing the sizeable decline recorded in 2001. The introduction of the euro on 1 January 1999 was a significant factor contributing to that decline in 2001.

Based on preliminary data, the average daily turnover for traditional foreign exchange instruments (i.e. spot transactions, outright forwards and foreign exchange swaps) traded by counterparties in the euro area was estimated at a level of USD 295 billion (see Table 1), representing more than 12% of the overall market volume in net terms (i.e. net of the double-counting of transactions with reporting dealers within the euro area). This compared with market share figures of 32% for counterparties in the United Kingdom, 19% for counterparties in the United States and 8% for counterparties in Japan. Within the euro area, most foreign exchange transactions were conducted between reporting dealers, rather than with other financial institutions or non-financial customers. Inter-dealer trading represented 64% of turnover in the euro area (see Table 2), which was much higher than the 53% reported at the global level.

At the global level, the euro was the second most actively traded currency in April 2004, being involved in 37% of “net-net” (i.e. adjusted for both local and cross-border double-counting) foreign exchange transactions. The most traded currency was the US dollar, with the Japanese yen taking third place after the euro. While the euro’s share represents a slight decrease of 1 percentage point compared with April 2001 (when that figure stood at 38%), it also shows that a stabilisation has taken place after the sharp decline observed between 1998 and 2001 attributable to the elimination of trading in the legacy currencies of the euro following the introduction of the euro in 1999. Indeed, in 1998 the legacy currencies were involved in 53% of all foreign exchange transactions. The share of the US dollar and the Japanese yen in global turnover also decreased between April 2001 and April 2004.

Globally, the euro continued to be traded predominantly against the US dollar, with that currency pair representing 76% of foreign exchange turnover involving the euro. Indeed, the euro/dollar currency pair remained the most actively traded currency pair, accounting for 28% of global turnover. That was, however, lower than the 30% share recorded in 2001. At the same time, the combined market share of other currency pairs involving the euro remained small (accounting for 8% of global turnover), reflecting the fact that the US dollar remained the main vehicle currency in the foreign exchange markets.

In the euro area, the most traded currency was also the US dollar, with that currency being involved in 84% of “net-gross” (i.e. adjusted for local double-counting) foreign exchange transactions (see Table 3). The euro was involved in 60% of foreign exchange transactions performed by euro area counterparties and was predominantly exchanged against the US dollar (that currency pair accounting for 45% of euro area foreign exchange turnover; see Table 4). Only 7% of transactions involving the euro were performed between two euro area counterparties, while 20% involved at least one euro area counterparty.

The average daily turnover for over-the-counter (OTC) derivatives, which include foreign exchange contracts, such as currency swaps and options, and interest rate instruments, was significantly higher in April 2004 than it had been in 2001 (overall OTC derivatives turnover rose from USD 575 billion in 2001 to USD 1,220 billion in 2004). Deals by euro area counterparties totalled around USD 289 billion (see Table 5), accounting for around 20% of the total reported OTC derivatives turnover in net terms (i.e. net of the double-counting of transactions with reporting dealers within the euro area). This share compared with 44% for counterparties in the United Kingdom, 24% for counterparties in the United States and 3% for counterparties in Japan. Interest rate derivatives instruments were by far the most widely used instruments in the euro area and their pre-eminence was even greater at the euro area level than at the global level (see Table 5). Indeed, in the euro area, foreign exchange derivatives contracts and interest rate contracts accounted for respectively 5% and 95% of overall turnover from derivatives contracts, while at the global level they made up 11% and 84% of turnover respectively (there is an estimated gap in reporting of around 5%). In line with the global figures, most OTC derivatives transactions in the euro area (61%) were conducted between reporting dealers (see Tables 6 and 7). Trading between reporting dealers and other financial institutions represented 30% of euro area turnover, which was lower than the 43% reported at the global level.

Trading in OTC interest rate derivatives continued to increase significantly compared with previous surveys. The euro again accounted for the largest share of global daily average turnover (45%), although to a lesser extent than in the previous survey (47%). The interest rate swap in euro remained the most traded instrument and accounted for 28% of overall turnover and 57% of the trades performed by euro area counterparties (see Table 8). The considerable growth observed in the turnover of euro interest rate instruments has been broad-based, resulting from a strong increase in interest rate swaps (66%), forward rate agreements (141%) and options (418%). Around 16% of the OTC interest rate derivatives in euro were traded between two euro area counterparties, while 29% involved at least one euro area counterparty.

(1) Adjusted for local double-counting.

(2) Adjusted for local double-counting.

(3) Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%. The figures relate to reported “net-gross” turnover, i.e. they are adjusted for local double-counting.

(4) Adjusted for local double-counting.

(5) Excluding the US dollar and the euro

(6) Adjusted for local double-counting.

(7) Single-currency interest rate contracts only.

(8) Adjusted for local double-counting.

(9) Currency swaps and options.

(10) Single-currency interest rate contracts only.

(11) Adjusted for local double-counting.

(12) Excluding the US dollar.

(13) Excluding the US dollar and the euro

(14) Adjusted for local double-counting. Single-currency interest rate contracts only.