Handling $266 billion a day

Someone I know, who wanted to send dollars to her son studying in America, had to
explain to her bank in Kolkata why she was sending the money. No questions asked
in Singapore. You just have to give the recipient’s name, bank account number and
the routing number of the bank where the money is to be sent.
Singapore is the world's fourth biggest foreign exchange centre, according to the
Bank for International Settlements in Switzerland. Its latest report shows
Singapore’s average daily foreign exchange turnover is – hold your breath – $266
billion. That's more than the Indian government’s annual revenue of Rs 682,212
crore, according to the 2010-2011 budget estimates. And if that sounds
humongous, you ain’t heard nothing yet.
Worldwide foreign exchange transactions every day, on an average, total $4 trillion.
Can you imagine all that money changing hands every day? That’s more than the
gross domestic product of almost every country. Only three countries produce that
much of goods and services in an entire year: America, China and Japan.
No, the world isn't short of money: only countries and people are. So India runs a
budget deficit, America has a $13 trillion national debt, and you see beggars on the
streets in many countries every day.
That's life – millions starve while trillions of dollars change hands every day.
And the funny thing is, some of the players don't even have a fraction of that
money. Singapore certainly doesn’t. The $266 billion of foreign exchange
transactions it handles every day exceeds its entire annual economic output.
Singapore's gross domestic product last year was S$247.3 billion ($184 billion). Its
foreign reserves total $200 million.
Obviously, not all the money changing hands is local.
Every international financial centre attracts its share of foreign money.
Britain is the biggest forex market, handling $1.8 trillion every day; America,
second, with $904 billion; Japan, third, with $312 billion. Then comes Singapore,
followed by Switzerland (S262.6 billion), Hong Kong ($237.6 billion) and Australia
(S192.1 billion).
India trails far behind, with an average daily forex turnover of just $27.4 billion,
about a tenth that of Singapore.
Not that India is short of cash. The companies listed on the Bombay Stock Exchange
alone have a market capitalization of $1.28 trillion – almost 2 ½ times greater than
their counterparts on the Singapore Exchange ($483.8 million).
The stock options may be limited, but there are other ways to make a bundle or
lose your shirt in Singapore. It has attracted hedge funds and built up a derivatives
market. Britain’s oldest merchant bank, Barings, went bust because of a rogue
trader, Nick Leeson, who lost millions of pounds on futures contracts in Singapore.
Now the city-state, which has no natural resources and imports even chickens and
eggs from neighbouring countries, is gunning for the metals and commodities trade.
And it is getting help from India.
 The Singapore Mercantile Exchange, which has just opened for trading in currency
and commodity derivatives, is backed by Financial Technologies (India), a company
founded by Vignesh Shah. He is the vice-chairman of the exchange.
Singapore’s growing financial sector is attracting foreigners. The 2010 census
shows the number of permanent residents has doubled to more than 541,000 in the
last decade, and now 20 per cent are Indians, up from 15 per cent in 2000.
But where does all the money go, changing hands in the $4-trillion-a-day global
forex market? No clue is offered by the Bank for International Settlements. It merely
notes that spot transactions – buying one currency with another for immediate
delivery – total almost $1.5 trillion a day. Foreign exchange swaps – which involve
exchanging the principal and interest in one currency for the same amount in
another currency – run to more than $1.76 trillion a day. “Outright forwards”, or
forward contracts to buy and sell at a certain price on a specific date, account for
another $475 billion a day. The rest of the turnover – more than $250 billion a day –
involves other kinds of deals.
It’s all very arcane, but one thing is clear. Everybody needs dollars. China is trying
to shake up the system, calling for a new global reserve currency, and promoting
trade and investment in renminbi. But there is no rush yet to do business in other
currencies, least of all in the Chinese renminbi. Its share of the forex market has
actually fallen, from 0.7 per cent three years ago to 0.3 per cent.
The Indian rupee has a bigger share, up from 0.7 per cent to 0.9 per cent, and so
does the Singapore dollar, up from 1.2 per cent to 1.4 per cent. But the dollar reigns
king, with 85 per cent of the foreign exchange transactions still done in greenbacks.
The euro is second, with a 39 per cent market share, and the Japanese yen third,
with 19 per cent, followed by the pound sterling (13 per cent). Yes, the numbers
add up to more than 100 per cent. The report explains why: “Because two
currencies are involved in each (forex) transaction, the sum of the percentage
shares of individuals totals 200 per cent instead of 100 per cent.”
Go, figure. Even the arithmetic is different. No wonder not everyone is a George
Soros. But one thing you do know. Wouldn’t a raise be nice?