The Fall of the British Pound... London's Declining Status as a Financial Hub

BIS Report: London Market Share Drops 5%P 'Brexit Backfire'
Chinese Yuan Trading Volume Soars 85%... Rises to 5th Largest Global Trading Currency

[Asia Economy Reporter Park Byung-hee] The status of the London financial market in the UK as a global financial hub is weakening as its share in global foreign exchange and over-the-counter (OTC) derivatives trading declines. The Chinese yuan has surpassed the Australian dollar, Canadian dollar, and Swiss franc to become the fifth most traded currency in the global foreign exchange market.

This fact was confirmed in the foreign exchange and derivatives market report published every three years by the Bank for International Settlements (BIS).

According to Bloomberg News on the 27th (local time), the BIS survey conducted as of April this year confirmed that London still maintains its position as the number one market for global foreign exchange and OTC derivatives trading, but its market share has decreased. London's role appears to have shifted to financial centers in the United States, Singapore, and other European countries.

As of April this year, 38% of global foreign exchange and 46% of OTC derivatives were traded in the London financial market. London's market share decreased by 5 percentage points in both categories compared to the 2019 survey.

There are criticisms that the UK's decision on Brexit (the UK's withdrawal from the European Union (EU)) has backfired, weakening London's status as a financial center.

After the Brexit decision, European banks moved financial transactions they mainly conducted in London to the European continent, significantly reducing the volume of financial transactions in London.

The Chicago Board Options Exchange (CBOE) also announced that in February last year, immediately after the UK completed Brexit, the stock trading volume of the Amsterdam exchange in the Netherlands surpassed London, UK, becoming the number one stock trading market in Europe. The UK government is pushing for financial regulatory easing to prevent the weakening of London's status as a financial center.

According to the BIS report, the daily foreign exchange trading volume in April this year reached a record high of $7.5 trillion. This is more than a 14% increase compared to the 2019 survey. BIS analyzed that the increase in trading volume was influenced by increased volatility in the global foreign exchange market during the survey period in April. April this year was just after Russia invaded Ukraine, a time when global financial markets were turbulent. The increase in speculative trading due to heightened volatility is believed to have driven the rise in trading volume.

Japan's Nihon Keizai Shimbun focused on the significant increase in yuan trading volume. The daily trading volume of the yuan reached $526 billion, an 85% surge compared to 2019. The yuan's share of total foreign exchange trading was 7% (based on a 200% sum of purchases and sales), up 2.7 percentage points from the 2019 survey. The yuan rose to become the world's fifth most traded currency, following the US dollar (88.5%), euro (30.5%), Japanese yen (16.7%), and British pound (12.9%). In the 2019 survey, the yuan ranked eighth globally, with lower trading volume than the Australian dollar, Canadian dollar, and Swiss franc.

Nihon Keizai Shimbun analyzed that the increase in yuan trading volume is due to sanctions on Russia. After Russia's invasion of Ukraine, Russia was expelled from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), making transactions with the dollar and euro difficult, leading Russia to increase transactions in Chinese yuan.

The daily OTC derivatives trading volume was $5.2 trillion, down 19% from 2019. The decline in derivatives trading is largely attributed to the discontinuation of the use of the LIBOR rate, which had long been used as the benchmark interest rate for derivatives trading. After the LIBOR manipulation scandal was confirmed in 2012, global financial regulators banned the use of LIBOR after last year. Although some alternative benchmark rates have been established, trading using these alternative rates is not yet active.

This content was produced with the assistance of AI translation services.