I believe that in the next decade we will all be able to establish a much clearer picture of capital flows and understand who is buying currency and where that currency goes. The information around currency value is currently flat and limited in its extent, making it difficult for anyone to compare multiple market options concurrently. Technology will change this and allow multiple variables to be compared in real-time, producing a more rounded, three-dimensional view allowing traders to consider what they are buying, why they are buying it and the impact that this may have instantaneously. In addition there will be more multi-currency platforms for all stock and commodity trading making it possible to see the real-time value of an Australian share in, for example Yuan. Perhaps more importantly over the long-term, new data analytic capabilities will also help traders identify emerging trends before they happen.
Technology is also democratizing the financial sector. In the not too distant future anyone will be able to trade, immediately knowing the amount they are paying in the currency of their choice. This increased transparency will make trading accessible to a much larger base and in so doing will limit the ability of the largest institutions to use their size and scale to control the market. Technology also enables resources to be scaled like never before – entire populations can now be targeted in order to bring together huge numbers of small investors. The number of participants will drive the market rather than single, large-scale investors. The force of the crowd could begin to overpower the influence of the few. When under threat, for example, it would be possible for thousands of individual investors to work together to stablise their national currency and prevent possible disruption. This sort of crowd intervention would be revolutionary but is indeed a real possibility. At the very least it will reduce the influence of banks and similar institutions.
Given the shifts in global trade and the opportunities that technology offers, change across all regions is inevitable. In particular, the emerging markets, free of constraint, are likely to seek to stabilize their currencies and so be able to support more foreign investment. The crowd will be in control and many small time traders are likely to join in; if 100 million people all make the same $100 investment the impact will dwarf the power of the hedge funds. Technology will also make the markets more integrated while the focus can remain fluid easily shifting from a global to regional to local perspective. It doesn’t mean that the competition will be less fierce.
In summary, nothing is stable in the currency markets but I believe over the next ten years they will be shaped by three key elements. Geopolitics, the rebalancing of power between East and West and change the flow of global trade will reduce the dominance of the US as a centralised power. Secondly, technology will continue to disrupt, enabling more insight than ever to be derived through the analysis of data and resources of the many to be amalgamated and scaled. In the process these dynamics will cause significant decentralization. Influence that has traditionally been held by select institutions will increasingly be moved to individuals and crowds. All of these factors are in flux and will interact with each other to determine the state of the industry in 10 years’ time. No-one can predict exactly what the currency markets will look like in a decade, but for the reasons outlined, it is likely to be unrecognizable from what we see today.