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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

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Fri, 03 Sep 2010

Is half the rupee-dollar market outside India?

I do not know whether I am reading the data wrong, but the preliminary results of the BIS Triennial Survey on foreign exchange turnover (April 2010) appear to suggest that nearly half the rupee-dollar market is outside India.

For the first time, the 2010 BIS survey includes the rupee as a “main currency” and provides data about the USD/INR turnover. According to Table 4, the average daily turnover in USD/INR was $36 billion. Table 5 tells us that the average daily foreign exchange turnover in India was only $27.4 billion. That might suggest that India accounts for 75% of the USD/INR market.

However, not all the Indian market is USD/INR. According to the RBI data (Table 47 of the RBI bulletin of June 2010) in April 2010, INR versus all foreign currencies was only 71% of the market in India; almost 30% was trading of various foreign currencies against each other. In this computation, I have taken both sides of the merchant trades and only one side of the inter-bank trades as the BIS data is on net basis. Of course, BIS also does cross border netting which might change the numbers a bit, but I would think the percentages might not be impacted too much.

If we make the reasonable assumption that the entire INR versus foreign currency market in India is actually INR versus USD and take 71% of $27.4 billion as the USD/INR market in India, we get $19.5 billion which is only 54% of the $36 billion global USD/INR market. If these calculations are approximately correct, India is only a little more than half of the total global rupee-dollar market.

One other relevant data point is that according to the BIS Table 5, India’s share of the global foreign exchange market has dropped from 0.9% in 2007 to 0.5% in 2010.

Unfortunately, while the BIS links to various central banks that publish their national results at the same time as the BIS, the RBI is not among them. So we do not have more data to verify these computations.

Posted at 15:18 on Fri, 03 Sep 2010     View/Post Comments (8)     permanent link