Between 2010 and 2015 alone, the East Asia-Pacific area saw an annual GDP
growth rate of 4.1% on average (for China the figure even came to around 8%)
whereas the global average was only 1.7%.
This has boosted the importance of
Asian currencies in international trade significantly, and hedging currency risks
has become essential for counterparties such as export and import firms.
The expansion of the FX derivatives market in Asia also reflects the increased
depth of local-currency bond markets, which was driven not least by the
experiences of the Asian financial crisis of 1997/98. To be specific, outstanding
volumes of government debt securities (short-term paper as well as longer-term
bonds) in local currencies2 grow from around 25% of GDP in 2001 to more than
40% in 2015.
Likewise, local-currency corporate bonds surged from virtually
zero to more than 15%. Remarkably, over the same interval, both government
and corporate bonds in foreign currencies remained largely flat relative to GDP.
In the meantime, global banks’ cross-border exposure towards emerging Asia-
Pacific countries tripled between Q2 2005 and Q2 2016. Cross-border
exposures to China alone increased more than tenfold. EU banks’ Risk
Weighted Assets (RWAs) in Emerging Asia made around 4 % of their total
RWAs in 2015.
With local currencies assuming an increasing role in Asian
financial markets, mitigating exchange-rate risks became crucial for market
participants such as European banks.