Hello, Rambo
No, I don’t expect a decline in total worldwide turnover.
In a moment, I’ll crunch some numbers, and show you why I think that.
But first, click on THIS LINK to download the [B]BIS Quarterly Review for December 2013[/B] (a little over a year ago), which had a pretty comprehensive review of the FX market at year-end 2013, in light of the 2013 BIS Triennial Survey.
Scroll to page 27 of the Quarterly Review, and fasten your seatbelt. The following 14 pages are pretty heavy-duty reading for folks who are not banking professionals.
Okay, now for some number-crunching —
From 2004 to 2007 (pre-financial crisis), worldwide FX turnover increased by about [B]69%.[/B]
From 2007 to 2010, (post-financial crisis), turnover increased by about [B]20%.[/B]
From 2010 to 2013, turnover increased by about [B]35%.[/B]
All of these increases were [I]distorted[/I] by special conditions and circumstances.
The 2004-2007 period was the blow-off phase of the bubble in financial derivatives, and the extraordinary growth in FX turnover during that period is widely believed to be a part of that bubble.
The 2007-2010 period, by contrast, was a period of depressed growth in financial derivatives, as the world economy struggled to recover from the collapse of the financial bubble.
And the 2010-2013 period was skewed by a special circumstance, as well. The period end-point (April 2013) happened to be the highest-volume month on record, following policy changes enacted by the Bank of Japan in early April 2013. If FX turnover had been measured in February or March 2013, instead of April, the worldwide net-net turnover figure likely would have been lower than $5.3 trillion, possibly substantially lower.
So, how to determine a [I]multi-year trend[/I] in worldwide FX turnover?
Just to throw some numbers at the wall, and see what sticks —
If we discount a chuck of the 69% increase from 2004 to 2007, to compensate for the financial bubble, maybe the gain in that period would have been reported as 50% instead.
And if we add a kicker to the 20% increase from 2007 to 2010, to compensate for the seriously depressed world financial situation, maybe the gain in that period would have been reported as 35%, or thereabouts.
And, finally, if we discount some of the 35% increase from 2010 to 2013, to remove the “Japanese effect” from April 2013 and the months immediately following, maybe the gain in that period would have been reported as only 25%, give or take.
So, if these manipulations of the numbers bear any relation to reality, then maybe there is a continuing upward trend in FX volumes — which, nevertheless, is slowing.
If we accept the worldwide turnover reported by the BIS in 2004 — $1.97 trillion, and then we apply the “adjusted” percentage increases imagined above, we get:
2004 — $1.97 trillion
2007 — $2.96 trillion — up 50% from 2004
2010 — $3.99 trillion — up 35% from 2007
2013 — $4.99 trillion — up 25% from 2010
And finally, extrapolating that series into 2016, we might guess that the 2013 to 2016 period will see a volume increase of 15%-20%, which would translate into a reported FX turnover for April 2016 of $5.73 trillion - $5.98 trillion.
All of the above is pure guesswork — just a thought-experiment. Don’t give it any credence. If the world economy recovers and begins to boom between now and April 2016, the foreign exchange market might be going like gang-busters. And it might eclipse that $5.98 trillion guesstimate by a wide margin.