Monthly Archives: July 2011

Currencies punching above their weight

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I recently enjoyed lunch with a group of former colleagues. At one point, the conversation turned to the Australian dollar, a natural enough topic for a bunch of finance types. Someone observed that the Aussie is the 5th most actively traded currency in the world, which is impressive since Australia is certainly not the 5th largest economy in the world (that honour currently goes to France).

Thinking about Australian dollar punching above its weight led me to wonder which country had the most actively traded currency relative to the size of its economy. A quick vote around the lunch table came up with four candidates: the Australian dollar, the New Zealand dollar (which is much beloved by hedge funds), the Swiss franc and the Norwegian krone. The most popular choice among these was the Australian dollar. I was wavering between the New Zealand dollar and the Norwegian krone, but none of us knew the answer. That meant only one thing: a Stubborn Mule post would ensue to settle the bet.

Starting with turnover in the chart below, it is no surprise that the US dollar is by far the most actively traded currency. Not only is the United States the largest economy in the world, but an enormous amount of international trade is conducted in US dollars, and sellers and buyers have to transact in the currency markets to convert US dollars to and from their local currency.

Currency Turnover League Table

Top 10 Currencies by Turnover (2010)

There are a number of reasons the Australian dollar is traded as much as it is. Our higher interest rates attract many into the carry trade (borrowing in low interest rate currencies, investing in higher interest rate currencies and hoping that the currency you are buying does not collapse). As a very commodity-driven country, many international investors see investing in Australia as a proxy for investing in commodities and, more particularly, jumping onto the China growth band-wagon. For many investors, simply buying the Australian dollar is cheaper and easier than investing in our stock-market.

But back to our bet. Only one of the assembled diners picked the Swiss franc, but it turns out to be at the top of the league table. With a GDP in 2010 of US$500 billion, there was average of $253 billion traded in Swiss francs every day in April 2010!

I have never made a close study of the Swiss franc, so I would be very interested in hearing any theories people may have as to why it is so heavily traded.

Next in the list is New Zealand, so my instincts were right there (let’s not mention the fact that I also tipped the Norwegian krone which came in a disappointing 11th place). Interestingly, third and fourth place, the Hong Kong and Singapore dollar respectively, did not even make it into our short list. And it turns out that the Australian dollar ranks 5th not only in terms of outright turnover, but also in turnover relative to economy size.

Currency Turnover/GDP League Table

Top 10 Currencies by Daily Turnover relative to Annual GDP (2010)

If you are interested in exploring the league table further, the table below has all of the data.

CurrencyDaily Turnover (US$)Annual GDP (US$)Turnover/GDP (%)
Swiss franc253500.350.6
New Zealand dollar63128.449.1
Hong Kong dollar94215.443.6
Singapore dollar56181.930.8
Australian dollar302101329.8
US dollar33781444023.4
Pound sterling513268019.1
Swedish krona8747918.2
Japanese yen755491115.4
Canadian dollar210150014
Norwegian krone53451.811.7
Hungarian forint17155.910.9
South African rand29276.810.5
Euro1555181408.6
Danish krone233406.8
Korean won60929.16.5
Polish zloty32527.96.1
Malaysian ringgit11221.65
New Taiwan dollar19391.44.9
Mexican peso5010884.6
Philipine peso7166.94.2
Turkish new lira297304
Chilean peso7169.54.1
Czech koruna8216.43.7
Indian rupee3812073.1
Israeli new shekel6202.13
Thai baht8273.32.9
Russian Rouble3616772.1
Brazilian real2715731.7
Colombian peso4240.81.7
Indonesian rupiah6511.81.2
Chinese renminbi3443270.8
Saudi Riyal2469.40.4
Other currencies 190NANA

 

Data sources
Currency turnover: Bank for International Settlements (BIS)
GDP: CIA World Fact Book (official exchange rates)

Bedside book pile

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Bedside booksJust as topics for blog posts are piling up, so are the books on my bedside table. I have always read more than one book at a time, but things are getting out of hand at the moment, and that doesn’t even take into account the books I have on the Kindle.

In an effort to prioritise my reading and clear a few from this precarious pile, I thought I would take a look at some of the books here on the blog.

Mistakes Were Made (But Not by Me) by Carol Tavris, which was the subject of my last post, is a fascinating examination of cognitive dissonance. I was only about a quarter of the way through the book when I was inspired to write that post and now that I have nearly finished, it has not disappointed. Topics as diverse as suppressed memory syndrome, what makes relationships succeed or fail, international conflict, racism, bullying and false convictions are all examined through the lens of cognitive dissonance. It only ended up at the bottom of the pile when I stacked the books for the photo, so it should come straight out and be the first one I finish.

I started reading Javascript: the Definitive Guide by David Flanagan quite a while ago when I was playing around with the charting tool Protovis. At the time I had some ideas for doing more than a few blog posts, but I’m a bit too busy to take them any further at the moment. Much as I would like to improve my facility with Javascript, I think this book should be retired back to the bookshelf for now.

A friend was working in Japan back in 1995 and was unlucky enough to be caught in the sarin attack on the Tokyo subway. I had spoken to him about it a few times when I came across the book Underground: The Tokyo Gas Attack and the Japanese Psyche by Haruki Murakami. Best known for his fiction, Murakami turned to non-fiction for the first time with this series of interviews with survivors of the attack. It makes for grim reading and so, as each chapter focuses on the story of a single interviewee, I have taken to reading a chapter or two at a time, turning to lighter subjects in between. This one can stay on the table.

Playfair’s Commercial and Political Atlas and Statistical Breviary by William Playfair is the oldest book here. Written in 1801, I regularly dip into this one for the pictures not the words. Regular visitors to the Stubborn Mule will know I am a chart enthusiast and William Playfair is one of the greatest pioneers in the field of visual representation of quantitative information. He is credited with inventing some of the most fundamental tools in the charters toolbox: line charts, bar charts and even pie charts. For a couple of years now I have meant to write a post about Playfair and this book can also stay on the table, at least until that post gets written.

At this point it is starting to seem as though I only read non-fiction. That is not quite true and there are two novels here: American Pastoral by Philip Roth, which I have started and Anathem by Neal Stephenson which I have not. Given how long it took me to get through Stephenson’s Baroque Cycle, I should really finish American Pastoral before I embark upon Anathem.

Given how long this post is already, there are clearly too many books to list here (and likewise too many to finish any time soon), but for the benefit of those readers who enjoy my posts about money and debt, I should point out that Monetary Economics by Wynne Godley and Marc Lavoie is there too. There is plenty of future blog material in that book, I have no doubt.