Summary of Key Findings
The 14th BIS Foreign Exchange Survey in 2025 reveals that the average daily global foreign exchange trading volume reached $9.5 trillion, a 27% increase from 2022. The US dollar's share of transactions hit a new high since 2004, while the Chinese yuan maintained its position as the fifth most traded currency, also recording a record-high share. The main driver behind this surge is the rise of the USD/CNY currency pair to become the third most traded pair globally. Exchange rate fluctuations and hedging demands caused by US tariff policies were the primary factors contributing to the increased trading volume. Singapore surpassed Hong Kong (China) to become the largest foreign exchange trading center in Asia. The internationalization of the yuan is moving from a regional to a global scale, but there are concerns regarding the potential transfer of pricing power to offshore markets.
I. The Co-Ascension of the US Dollar and the Yuan: Complementation Rather than Replacement
Many talk about "de-dollarization," yet BIS data shows that the dollar's share of transactions actually increased—89.1% in 2025 (a new high since 2004), and the yuan also rose to 8.6% (a record high). Why have both currencies seen an increase?
The key lies in the USD/CNY currency pair, whose trading volume grew by 59%, surpassing the USD/GBP pair for the first time to become the third most traded pair globally (after USD/EUR and USD/JPY). This indicates two things:
1. "De-dollarization" should be viewed from different perspectives: While the dollar's share in foreign exchange reserves has decreased by 2.6 percentage points, its activity in transactions (such as payments and foreign exchange buying/selling) has increased. It's like having less cash on hand but spending more money daily; we can't simply conclude that the dollar is no longer important.
2. The internationalization of the yuan does not mean replacing the dollar. The rise in USD/CNY transactions reflects a complementary relationship, with the yuan playing a crucial role in supporting dollar trading. For example, while the yuan is the primary currency for domestic cross-border payments, foreign currencies still account for 90% of external payments, indicating that they complement each other rather than being competitive.
II. Why the Sudden Surge in Global Foreign Exchange Trading?
The 27% increase in global foreign exchange trading in 2025 was driven mainly by the rapid growth in spot, forward, and option transactions (42%, 51%, and 108% respectively), while swap transactions (long-term hedging tools) grew more slowly. The direct cause is US tariff policies, which led to an unexpected depreciation of the dollar. Investors sought to hedge their risks by using forwards (to lock in future exchange rates in advance) and options. BIS estimates that tariff policies contributed $1.5 trillion to the increased trading volume.
In contrast, on the Chinese mainland, only 8% + 10% = 18% of enterprises use forwards/options for hedging, compared to the global average of 18% + 7% = 25%. Mainland banks handle 70% of spot transactions for customers and only 8% of forward transactions, suggesting that mainland companies prefer to buy and sell immediately rather than using hedging tools. This is an area that needs improvement, as it can result in higher import costs if the yuan depreciates without prior exchange rate locking.
III. Why Singapore Surpassed Hong Kong as Asia's Leading Foreign Exchange Center?
Previously, Hong Kong and Tokyo were the leading Asian centers for foreign exchange trading, but Singapore has now taken the lead. In 2025, Singapore's trading volume increased by 60% to $1.5 trillion, with its share rising from 9.4% to 11.8%, far exceeding Hong Kong (7%) and Japan (3.5%).
There are two main reasons:
1. Geopolitical Stability: During times of global geopolitical risk, capital prefers stable locations. As a neutral country, Singapore has become a safe haven for international investors.
2. Strong Capital Inflows: In 2024, Singapore received $143.4 billion in foreign direct investment (FDI), the second-highest amount globally (after the US), an increase of 6.1% from the previous year. With more capital flowing in, foreign exchange trading naturally increased.
This highlights the importance of a stable environment and open policies for attracting international investment.
IV. The Advantages and Challenges of the Yuan's Internationalization: From Regional to Global, but with Potential Loss of Pricing Power
The yuan has made significant progress:
- Expanded Trading Scope: Its trading volume has expanded beyond Asia, with a noticeable increase in Europe (e.g., Germany), where the yuan's share nearly doubled from 0.4% to 0.7% due to increased trade between China and Germany.
- Diversified Participants: Non-bank institutions such as hedge funds and proprietary trading companies are participating more actively, driving record-high trading volumes.
However, there are concerns that pricing power may be dominated by offshore markets. For example, the dollar's pricing power is not in the US (only 25% of US transactions are conducted in the US), but in the UK (50%). The same trend is emerging for the yuan, with offshore markets (Hong Kong, Singapore, London) accounting for a larger share of yuan transactions than domestic markets. If pricing power is not controlled domestically, exchange rate fluctuations could be influenced by external factors, which could be detrimental to domestic businesses.
V. Implications for China's Foreign Exchange Market
BIS data suggests that there is room for improvement in China's foreign exchange market:
1. Increase Diversity of Participants: Domestic non-bank financial institutions (such as securities companies and finance companies) are underrepresented (only 1.5% of trading volume in 2022). More institutions with different risk profiles, such as hedge funds and pension funds, should be encouraged to participate to make the market more dynamic.
2. Improve Products and Regulations: Current products and regulations may limit hedging activities. For example, the "actual need" principle may restrict legitimate hedging efforts. Restrictions should be relaxed to allow companies to use tools to manage exchange rate risks more effectively.
3. Deepen the Domestic Market: A more active domestic market will help retain pricing power. This can be achieved by increasing trading volumes and attracting more international investors, allowing the yuan exchange rate to reflect market supply and demand more accurately.
In summary, the BIS survey indicates that the dollar's dominance is unlikely to change in the short term, and the internationalization of the yuan should follow a complementary approach. Changes in the global foreign exchange market are closely linked to geopolitical factors and policies. China needs to accelerate reforms to better cope with international fluctuations.