Israel's Daily Foreign-Exchange Trade relative to GDP: an International Comparison

3.5.2005
 
Israel's Daily Foreign-Exchange Trade relative to GDP: an International Comparison
 
    In terms of NIS/foreign-exchange trade, Israel ranks in the middle of the group of developing countries, whose currencies are less traded than those of advanced countries.
  Against the background of the direct connection between the size of an economy and that of its forex trade, Israel's forex trade is greater than that of the Czech Republic, whose GNP is lower than Israel's, but lower than that of Brazil, whose GNP is higher than Israel's.
  The average daily turnover in Israel's forex market in April 2004, including NIS/FX and FX/FX trade, was about $ 5 billion, which is about 0.2 percent of the average daily total international trade of $ 2,400 billion.
  About half of the forex trades carried out in Israel involve the NIS. Turnover in NIS in Israel has risen continuously and considerably in the last ten years, and at the end of 2004 and the beginning of 2005 its average daily level reached some $ 2.2 billion.
  From 2001 to 2004 Israel's forex market, including NIS/FX and FX/FX trade, rose by 67 percent, while the international forex market grew by 49 percent.
The Bank of Israel's Foreign Currency Department advises that in terms of turnover in foreign exchange, and against the background of the direct link between the size of an economy and its foreign-exchange turnover (transactions involving exchange and conversion of local currency against foreign currency), Israel ranks in the middle of the group of developing countries. Its forex turnover exceeds that of the Czech Republic, whose GNP is lower than Israel's, and is lower than that of Brazil, whose GNP is higher than Israel's. However, local-currency/foreign-currency trade in Israel, Turkey, South America and East Europe is low relative to their GNP compared to advanced countries such as Sweden, Denmark, Canada and Australia. The reason is that the level of trade in the currencies of developing countries is relatively low, even if their economies are large in terms of GNP.
Another factor which affects an economy's forex turnover is its importance as a global financial center: in the UK and Singapore, for example, trade in foreign exchange is relatively high. Thus in Singapore, which is considered to be a financial center and an advanced economy, and whose GNP is similar to Israel's, the level of local-currency/foreign-currency trade in 2004 was five times larger than Israel's.
In Israel about half of the forex trades involve the sheqel. The volume of this trade has risen continuously and markedly during the last ten years. At the beginning of 2005 NIS/FX turnover rose to an average daily level of almost $ 2.2 billion, compared to just below $ 1.7 billion in 2003 and 2004, and eight times its level in 1995.
The triennial survey published at the end of March 2005 by the Bank for International Settlement (BIS, the central bank for the world's central banks), which has 52 member countries, shows that Israel's forex trade, NIS/FX and FX/FX, in April 2004 averaged about $ 5 billion a day, representing some 0.2 percent of global forex trade averaging $ 2,400 billion a day. This is similar to the percentage quoted in the 2001 survey. The latest survey also shows that from 2001 to 2004 the volume of international forex trade grew by 49 percent. Three countries, the UK, the US and Japan, account for 58 percent of the trade, a figure that has not changed since 1998. The currency composition of the international trade has also remained almost unchanged: the dollar continues to be the principal currency, featuring in 89 percent of forex trades. The euro was traded in 37 percent of transactions, and the yen in 20 percent. In Israel 97 percent of total forex trades, including NIS/FX and FX/FX, were against the dollar.
 
Figure 1: Average Daily Turnover in Israel, 1995–2005

 
* 2005––daily average January to March.