The Largest Market in the World

Recently, China has reduced its dollar reserves, but the Asian nation still has in its ranks a gigantic treasure chest of US currency. It should be clarified here which countries carry much greater quantities of the US currency and what impact this has on the global economy. What position Forex plays in this should also be considered.

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Forex? Why is that important?

 

The first thing to do is to explain what trading in Forex is and how it works. All transactions that revolve around the purchase and sale of foreign currencies are referred to as the foreign exchange market or forex for short. This is already part of the chaos in the currency markets, even though you swap your euro for another currency before your next trip to Denmark.

International currencies are essentially foreign currency designations. You can now buy these foreign currencies in so-called lots from a dealer - uniform units - (usually 100,000 units). Using the trigger, it is likely that on average, the investor just needs to deposit between 0.25 and 5 percent of the traded volume. The remainder is given by the broker.

When the funds on the deposit are used up, the broker immediately closes the trade. This implies that private individuals may also engage in Forex with reasonably low risk. According to Statista, from just under US$ 1.2 trillion in 1995 to almost US$ 5.1 trillion in April 2016, the amount of sales that are transferred every trading day on the foreign exchange market has risen. This makes the largest and most liquid stock market in the world, the Forex market.

 

Payment transactions are in US dollars

 

In the global economy, the US currency has for decades been the undisputed reserve currency. The dollar is involved in over 87 percent of all foreign exchange transactions, according to a report by the Bank for International Settlements (BIS).

Global trade, meanwhile, is also overwhelmingly in dollars. Although Europe is three times as involved as the US in trade with the world, Europeans must repeatedly turn to the American currency for their exports. The so-called Swift statistics, which display foreign payment transactions, confirm this. It reveals that the dollar accounts for 44 percent of foreign payments at present. He drew or still draws a large part of his strength from exactly this consistency.

The value of the dollar has a significant effect on the global economy as a whole. If the FED raises the main interest rate, the demand for the dollar worldwide will increase. This implies that capital flows out of the emerging markets and causes volatility there.

In particular, if you have made an economic mistake and borrowed money in a foreign currency, in this case in dollars, there is a high chance of having trouble paying off your debt. The appreciation is twice as painful if the economy then struggles as a result of the outflow of money. In the past, such an increase has only occurred twice, and at the end of this year, a further increase in the US main interest rate may follow.

 

Countries by currency reserves or importance for the Forex

 

Although global foreign exchange reserves peaked at $11,685 trillion in 2013, they have dropped by nearly 10 percent since then. In 2016, it was just $10.715 trillion.

The following countries hold the largest currency treasures in their possession, according to the data prepared by Statista and provided to the International Monetary Fund for February 2017.

Currency reserves are assets of a central or issuing bank in foreign currencies, in precious metals, in special drawing rights, or in reserve positions in funds kept by the IMF to manipulate the currency market or cover foreign trade deficits.

Global foreign reserves were just 10.8 trillion US dollars five months ago instead of 11.06 trillion before, according to data from Reuters and the IMF. The US dollar share is just over 63 percent, which is equal to about 4.94 trillion in value. Around one percent is the Chinese yen. The euro makes up about 19.7 percent of the foreign exchange reserves.

 

Since 2010, China has been number two on the list of economies. In 2014, in terms of purchasing power, China also overtook the US. It has $ 3,2999 trillion in foreign exchange reserves, except Hong Kong. Economic growth is set at approximately 6.5%.

In the Middle Kingdom, the economy is highly export-oriented; in the past twelve years, foreign trade has risen by more than 1000 percent. China is home to the largest container port in the world with Shanghai and, without Hong Kong, is described two more times in the Top 10. In monetary policy, this results in tension. A too powerful yuan makes exports more costly and causes the export of goods to fall.

A yuan that is too poor is risky for the country's economy.

International investors withdraw their money if the value is too low. Currently, the Chinese government is seeking to boost the national currency against the dollar. To compensate for the fact that more and more Chinese citizens decided to diversify their assets and among other things, accumulated huge quantities of dollars, the Chinese central bank had to sell foreign currency reserves.

To prevent the yuan (renminbi) from devaluing too much against the US currency, this move was appropriate. The government wants to completely open up the currency for trade by 2020 and expose its value to supply and demand powers.

Shortly, state-owned companies are projected to be more market-oriented and more innovative, to broaden the country's value chain, and to specialize in strategic technologies such as information technology, biotechnology, or aerospace technology. Furthermore, the "green economy" and robot technology should be extended and supported.

However, it is still important to strengthen the investment conditions for foreign actors. However, talks are currently underway with the EU on a substantive investment agreement.

 

Japan, the third-largest economy in the world, holds In currency reserves, 1.2969 trillion, comes second.The highly export-oriented nation must also ensure that against the dollar, the yen does not appreciate too much. This will make the island nation's goods more costly and impact almost the whole Japanese economy.

In the areas of research, growth and manufacturing, electronics, machinery, automotive engineering, and the chemical industry, it is one of the world's strongest. That is why the monetary policy of the country is always careful to support, by weakening the yen, the export market. This dependence would continue to exist, given demographic growth and poor domestic demand.

On the Japanese stock exchange, a devaluation of the yen has only led to price rises. The export companies were as was to be expected, especially in demand. Before that, the yen's ten-month high against the dollar had triggered worries about the company's profits there. Among other items, the slight relaxation of North Korea and the decline of Hurricane Irma helped. The dollar had its lowest value since the beginning of 2015, a week earlier. The chaotic political situation in the USA is one of the reasons for this.

The money supply about GDP reached about 80 percent in 2016, thanks to a scheme to buy Japanese government bonds amounting to 700 billion euros annually since 2014. This figure is around 20 percent in the EU and around 21 percent in the USA. After hitting its high of US$ 206 billion in 2012, the amount of foreign direct investment dropped again to about US$ 170 billion in subsequent years. Overall, however, Japan benefits from Asia's entry into the global market and the strengthening of developing countries. The monetary policy of Japan and its outstanding position in the world market ensure that the JPY, together with the USD, is the second most widely traded currency pair with a forex market share of 13%.

 

There is already 0,7138 trillion US dollars on the credit side of the IMF in Switzerland. The Alpine Republic's unemployment rate is a low 3.3 percent and the inflation rate is -0.4 percent. The country is characterized by the banking sector and export-oriented, specialized industry. Moreover, it also makes a large income from selling raw materials.

Following the lifting of the 1.2 CHF per euro price relation to the euro in January 2015, the franc soared. The export industry and tourism were hit hard by this. It even achieved parity against the euro at times. In particular, the powerful euro bothers him. Because of the stable euro area economy and Draghi's declaration that he plans to discontinue the ECB's economic and securities buying program, the tide has changed.

At present, the Swiss franc has hit a low point and there is a call for 1,14 francs for a single euro. For example, watch manufacturers Swatch and Richemont, who sell a large part of their products internationally, profit from this in turn. Other specialist industries benefit from better export markets, such as those for medical precision instruments or those in the electrical industry.

For foreign investors, on the other hand, Switzerland is also a safe bank. This status may be jeopardized if the franc weakens too much. Companies manufacturing or purchasing in the EU are also finding it difficult. As a consequence, for them, expenditure increases and productivity suffers. Last but not least, Switzerland's people are affected. For them, papers from abroad or holiday trips would be considerably more costly than before.

However, Switzerland benefits from the fact that the variations in the exchange rate against the euro are helped by the fact that large Swiss stock-market fish, such as Roche, Nestlé, and Novartis, account for a large proportion of their income in US dollars. As a result, there was a net foreign trade surplus of about 37 billion Swiss francs in 2016.

 

Saudi Arabia ranks fourth after Switzerland. It is the Arab world's largest economy. It has roughly $0.4929 trillion in foreign exchange reserves. Saudi Arabia is one of the major producers of petroleum and the largest oil exporter in the world. Since oil is historically traded in US dollars, the economy of the country is highly dependent on the world reserve currency rate.

Last year the government's deficit was more than EUR 90 billion. That is why last year the ambitious "Vision 2030" reform was unveiled. It is important to diversify the economy and to sell 5 percent of the state oil company. The remainder is to be absorbed into the sovereign wealth fund, which will then expand to be the world's largest. Among other things, it is important to manufacture its plants for the development of renewable energy sources, reform the education system, gradually incorporate women into the labor force, and much more. In this way, even after the oil wells dried up the economic future of the desert state will be assured.

The Crown Prince wants his nation to become independent from oil in twenty years and to make it a big global investor. To this end, more locals, i.e. migrant workers, have to be absorbed into the labor market, which is now dominated by about nine million ex-pats.

Next year a five percent VAT will be added as well. It can be expected that if Saudi Arabia turns away from oil, it will be even more aggressive in the capital markets, most likely in the forex market as well.

 

In currency reserves, Hong Kong holds $0.4202 trillion. High foreign exchange reserves are largely because Hong Kong is one of Asia's most significant financial centers and has the world's fourth-largest container port.

In an extremely service-oriented economy, the unemployment rate is 3.5 percent. 90% of the gross domestic product is accounted for by the service sector, and every second employee is working in commerce, banking, logistics, or related industries.

In addition, tourism also plays a significant role. Hong Kong's currency is pegged to the US dollar.Therefore, it is only in the small currency market, which accounts for only about 10% of the foreign exchange market.

Most recently, the inflation rate was 2.4 percent. Also, Hong Kong is the most significant source of foreign investment and provides companies from mainland China with access to debt capital. In 2016, Hong Kong was the second-largest target market and the third-largest source of direct foreign investment.

 

With a backup of $0.403 trillion, Russia follows closely behind. Russia also has some foreign exchange reserves, accumulated primarily by the trade of commodities. The Russian economy is not so focused on the export of finished products that it produces 50 percent of its gross domestic product in the trade or service sector.

Moreover, raw materials, particularly oil and gas, are mainly exported, most of which are traded in US dollars. Just about 15 percent of GDP is in the manufacturing sector. In the recent past, to compensate for the depreciation of the ruble, Russia has regularly sold huge quantities of US dollars.

Russia had to part with US securities on a wide scale after the oil price dropped to $26 in early 2016, the Russian economy crashed and the ruble fell to an all-time low. The West's sanctions have made the situation even worse. Now the price of oil has risen again recently and is now back in the region of 50 dollars.

As a consequence, the creditworthiness of Russia has strengthened immensely again. The ruble also rallied, so there could almost be fear that the hesitant recovery would be slowed down. Russia has been able to extend its US bonds back to just under 100 billion US dollars in two attempts after Trump was elected US President in November last year.

Furthermore, Russia has recently managed to get around the free market sanctions. Russia sold $3 billion in government bonds at almost twice the rate of interest owed on US debt.

Now that the markets have restored confidence, it is possible to talk about resolving the crisis. This should not, however, mask the fact that Russia relies heavily on its raw materials and that there is an urgent need for significant structural reforms.

 

Next is South Korea, with a value of US$ 0.3739 trillion. The position that exports play in the country cannot be overestimated for producers such as Samsung, Daewoo, Hyundai, and LG, which are based in the tiger state.

As a result, to keep the rate of the Korean won low against the US dollar, the country needs to be able to control the foreign exchange markets. There was also no significant effect on the local economic situation from the diplomatic tensions across the Korean peninsula.

Within the last few weeks, the victory has scarcely moved. Global investment, however, dropped 41 percent in 2016 to $ 9.8 billion. In the Republic of Korea, there are currently about 7500 foreign companies working. International trade also dropped by 12.3 percent in addition to savings.

 

This is followed by Brazil, with currency reserves of at least $0.369 trillion. It is also part of the BRICS countries and one of the world's biggest developing countries. The country is suffering from low prices, especially for oil, because of its abundance of raw materials.

There is also hope that consumption in the country will increase slightly again, given the 18-month low in the inflation rate. The economy is getting better and the recession is hopefully over. The explanation for investors' loss of confidence and the resulting severe recession was due to a wide budget deficit that resulted from subsidies and increased government spending.

The domestic market is the most critical, with 200 million inhabitants and a foreign trade share of just 20 percent. Unemployment has risen to 12 percent there though. Industry, which has been grappling with shrinking demand since 2014, is the biggest weak point in the economy. As a consequence, the nation is not benefiting from its currency's low value.

This value rapidly recovered in the years that followed, after Brazil had a negative foreign trade balance for the first time in more than ten years in 2014. While overall trade volume has decreased, since records began in 1980, Brazil reported its highest surplus.

The situation concerning foreign investors changed again in 2016. US$ 79 billion in direct investment has flown into the country.

 

With a balance of $0,3669 trillion, the seventh-place went to India. The nation is one of the fastest-growing economies in the world and 7 have been published. Economic growth of 1 percent in the 2016/2017 financial year.

Similar numbers are expected this year. India is presently one step ahead compared to the other BRICS countries. Inflation on the subcontinent has declined from almost 10 percent to 3.5 percent between 2014 and now. India has seen significant growth in foreign investment because of the dedication of the Modi government to a market economy.

They hit a height of 40 billion US dollars between April 2015 and March 2016. Between 2000/01 and 2015/16, the share of foreign trade in GDP increased from 23 percent to 45 percent. The rupee has recovered against the dollar after its low point after the November 2016 currency reform and is now better off than before.

There are transportation deficits in India, but there are concrete plans to at least connect the economic centers of the country.

 

Then Singapore, as an asset-side thing comes with at least 0.2533 trillion US dollars. Singapore has the biggest container port in the world and its infrastructure is excellent. One of the most significant financial centers in the world is situated on the spot.

Furthermore, there are exceptionally low tariffs in Singapore and an uncomplicated customs system. Approximately 96 percent of all products are duty-free and only a limited number of goods require import licenses. The economy is very export-oriented and therefore highly dependent on foreign financial market developments.

In particular, the dollar and the euro play an important role. City-state monetary policy is therefore aimed at controlling exchange rates, especially against the US dollar. The Singapore dollar has marginally lost again recently after a long time of appreciation against the US dollar.

The sovereign wealth funds of Singapore are also of great significance. Firstly, Temasek, which in the last ten years has risen from 164 to 275 billion Singapore dollars. On the other hand, the GIC, officially priced at US$ 100 billion, but estimated by value analysts to be three and a half times that number.

Singapore, for investors, is a safe haven. The population is well educated, the economic atmosphere is very business-friendly, and there is a stable political situation and currency. Moreover, the SGD Dollar still offers interest rates in a positive, if very low range.

 

In eleventh place is the Federal Republic of Germany. She is also able to rely on a $0.1958 trillion treasure trove. Until 2008, Europe's largest economy was the world export champion, planning the entire economic structure accordingly. Global trade makes up almost every fourth worker in Germany.

The foreign trade quota was at 72.2 percent of the gross domestic product at the pre-crisis stage in 2015. It is all the more amazing because when it joined the euro, the nation effectively put its currency policy in the hands of the European Central Bank. It owes its high currency reserves to its trade surplus, which since 2014 has been well over EUR 200 billion per year. It also surpassed EUR 252 billion in 2016 and smashed the record for the third time in a row.

An end to this growth is not in sight yet. As a country depleted of natural resources, Germany is also dependent on energy sector imports. If the dollar were powerful, imports would become more costly, as raw materials are mostly exchanged in this currency. On the other hand, an overly strong euro makes exports of products more costly and puts employees at risk.

On the other hand, under the scheme of cheap money and zero interest rates, private insurance, savings, and social insurance are struggling. The latter are legally obligated to invest in secure but not very profitable investments at present. Forex trading will remain the most significant currency pair for private sector players, after all the euro and the US dollar.

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The U.S. is the world's largest economy, but it has a comparatively limited currency reserve volume. This is primarily attributed to the reserve currency of the USD and has many reasons.

On the one hand, the dollar plays a vital role in the global economy, as has already been demonstrated. The United States therefore will trade even more often on the international market with its currency. It is not necessary to swap other currencies.

Companies benefit from the fact that no costly hedging transactions need to be performed by them. Nevertheless, in the vast majority of all foreign exchange trades, the US dollar is involved. With negative deficits of USD 502.3 billion and USD 552 billion, both the foreign trade balance and the budget indicate significant deficits. The debt burden of the state is reportedly a mammoth 20.165 trillion US dollars. With a weak dollar, they are seeking to compensate for this. That is why China and other nations are always pressing for the US to appreciate their currencies.

The Fed has also adopted a zero interest rate strategy for years and put vast sums of money into circulation, thus artificially decreasing the dollar rate. However, interest rates were boosted in December 2015 for the first time in nine years.

States rely on a large, well-developed country and the abundance of raw materials for their economic success. By 2020, the USA wants to be self-sufficient in terms of electricity. Moreover, with about 324 million people, the nation has a domestic sector.

The service sector produces almost 80 percent of GDP, the manufacturing sector accounts for the remainder, and agriculture accounts for 1 percent. The job market has almost hit full employment, with a 4.8 percent unemployment rate.

The UK also had currency reserves of $ 0.1635 trillion in 2016. London, ahead of New York, Hong Kong, and Singapore, is not only the capital of the United Kingdom but also the world's leading financial city.

In the field of derivatives and foreign exchange trade, London is a world leader. The British pound also accounts for 11.6 percent of foreign exchange trade, along with the dollar. The financial sector is overwhelmingly deeply entrenched, with a value-added share of 11 percent. Actually, not even the looming Brexit seems to jeopardize this role.

In general, the country is characterized by the service sector, with a 79 percent share of GDP. Here, in particular, the financial sector plays a key role. However, the British economy does not need to hide in the world market in many high-tech regions. These include telecommunications, information technology, defense technology, construction of automobiles, electrical engineering, biotechnology, and the pharmaceutical and chemical industries. However, 14 percent of GDP is still contributed by the manufacturing sector.

Nevertheless, the jobs rate in autumn 2016 hit a record high of 74.5 percent. At pre-crisis peaks, the unemployment rate is currently below 5 percent. The traditionally very strong pound has been plummeting since the Brexit referendum.It has lost a great deal of its value, especially against the euro. It was as poor as it was in March 2010, the last time. The 2.6 percent inflation rate was just announced.

So far, however, no new impetus has been given to the economy by the weak currency and exports have not risen as strongly as in previous periods of weakness. Despite the Brexit announcement, slight economic growth was reported, but this was due in part to higher consumption, which was partly financed by credit.

The United Kingdom has for decades had a deficit in international trade. The deficits in the exchange in goods cannot be accounted for by the surpluses in the balance of services. The deficit was $ 226.37 billion last year.

 

In terms of currency reserves, Australia is not that relevant, but the currency pair between the US dollar and the Australian dollar is the fourth most traded currency pair on the foreign exchange market. It ranks 37th among the countries with the largest currency reserves, with only 49,265 billion euros.

In return, for the longest time without a recession, the nation holds the world record. The economy has developed for more than 26 years in a row. 70 percent of GDP is accounted for by the service sector, including education and finance, tourism, real estate, and business services.

While agriculture and mining only account for 2% and 6% of GDP respectively, they account for 70% of exports together. In recent years, however, falling commodity prices have left their mark, as iron ore, coal, natural gas, and gold are the country's main export products.

As a consequence, in the third quarter of 2016, there was an unforeseen recession and there are rising indications that the economy could somewhat cool down. For example, by October 2017, the production of cars will be completely discontinued. For the supply firms, this would also have huge implications and the already declining number of workers in the manufacturing sector will continue to decrease.

40,000 jobs are likely to be eliminated, some of which would be replaced by building up a leading weapons industry. To offset the AUD appreciation, at the beginning of August 2016, the central bank reduced the main interest rate to 1.5 percent, which is the lowest level ever. However because the commodity markets have recovered, there is no expectation of a further fall in interest rates.

 

Canada is the 11th largest economy in the world, but it does not have strong currency reserves, at 83.13 billion US dollars. This is unique in that exports, especially to the USA, are heavily dependent on all branches of the economy.

Low oil and natural gas prices also have a negative effect on economic development and the national budget as a country with the third-largest oil reserves in the world. A large number of jobs have been lost in the most critical oil province of Alberta, as a result of the decline in oil prices. Canada still has a powerful and future-oriented economy, however.

The divisions of the automotive industry, aircraft construction, wood, and paper processing, the chemical industry, and also information and communication technology should be listed in the manufacturing sector. Canada, however, suffers from a shortage of qualified staff, which has a negative effect on the location of the industry. The economy is also burdened in some cases by the barriers which exist between the provinces.

In the construction industry, for example, non-provincial enterprises are disadvantaged or technical qualifications are often not recognized. Although Canada is a nation of exports and a free market, foreign investment in key areas has been limited. It is widely touted for international financial injections in other regions.

The main investor is the USA. As already stated, raw materials, metallurgical and chemical products, vehicles (parts), machinery, and fishery and forestry products are Canada's most important export goods.

On the other hand, imports were primarily machinery, vehicles, and consumer goods. The neighbor in the south is also responsible for 80 percent of exports. The United States is Canada's most important partner in trade. This explains, among other items, the place on the foreign exchange market of the CAD / USD currency pair. This is the fourth most-traded constellation, with a 5.6 percent share of the trading volume.

 

Conclusion

 

Economies have very different preferences and aspirations for exchange rates because of their economic systems. As a consequence, they must always realign themselves to one another. As Russia and China have demonstrated in the recent past, the forex provides a strong change screw in the hands of the monetary authorities.

It is possible to monitor reasonably precise investor flows and export performance through exchange rates. States can not only steer their fortunes in this way, they can also cause turbulence at the other end of the globe through global interdependence.

It remains to be seen if, soon, the BRICS states will shake the US dollar's global supremacy. The signs are rising that something is happening and that solutions are being pursued. In the long run, many states are no longer able to fund the United States beyond their means for their lives. However, as long as the yuan is not open to trade, major investors would not be able to invest their money in secure alternatives to the dollar.

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