Those of you wise enough to listen in to our weekly podcast will know that I am currently in South Africa, although not, I should point out, to stalk the Global FXC (although I did manage to pop up in front of some members!)
Instead I am here as part of my work with ACI Australia’s Dealing Simulation Course and last week we worked with three regional offices of the IMF to run the course for 30 African central bankers. As always the course was highly rewarding, but during a peer-to-peer session held during the week I realised that my entreaty last week about remembering why the foreign exchange industry really exists (the real economy) was only part of the story – I missed out the role it plays in emerging and developing countries.
There are, of course, people much brighter than me who can tell you about the role the FX markets plays in the economies of, for example, sub-Saharan nations, but what was striking to me was the importance placed upon FX by just about every participant there.
I have to stress that more emphasis was placed upon the FX swaps markets than spot – which may be food for thought for those that believe FX swaps should be regulated and mandatory cleared, half of the world geographically speaking isn’t ready for that or doesn’t want it – but either way FX plays a central role in the management of the economy and even, in some cases, the ability of the government to deliver services to the population.
It would be wrong, however, to see Africa for example, as a continent still running on voice, another thing that became apparent was how these nations were leveraging technology as part of their day-to-day work in the markets. I have to give a shout out to Thomson Reuters here, the firm has long had an association with developing markets but it was obvious how many of these central bankers relied upon technology from the firm to help them conduct their duties, but equally it was clear that some are now thinking in terms of fintech solutions to deepen automation in their markets.
We should not be surprised by this, after all, mobile phones can handle just about everything a desktop computer could 10 years ago, but it was noticeable to me how a few of the attendees there were thinking about disruption. They don’t use that buzzword itself, but cryptocurrencies, peer-to-peer trading and lending, and mobile payments were clearly on some central bankers’ agendas.
So again, the FX industry – and more importantly certain regulators – have to be reminded that it is not all about the major centres. Of course we have to get the market structure right in those places, but going too far is a concern because it risks creating a schism between these centres and the vast number of regional markets that cannot and probably will not catch up.
There is a tremendous amount of value in regional markets (they are commensurate with the risks of course) but before we go charging into imposing certain solutions on the industry we need to not only stop and think about the end corporate or investor, we also need to consider the likely impact on regional markets.
To me it was pleasing that not only did the GFXC come to Africa for last week’s meeting, but that it also welcomed Georgia as an associate member. Very few of us would have picked Georgia out as a foreign exchange centre, but there is clearly business being conducted there because it trades and invests externally, thus it is appropriate, and welcome, that not only does the country want to engage with the GFXC, but that the latter is also willing to reciprocate.
We have in the past been fixated upon high volume client segments and that is changing. We also need to dilute slightly, our fixation with four or five major centres when reforming the market structure. The foreign exchange market is a global market that permeates every corner of the world – it might also be worth reminding those attempting to impose an agenda on the market of this fact because too many seem to think because it works in their country, in other markets, it will in others in FX.
That is not, never has been, and likely never will be the case.