The Paz Activity Curve

A study evaluating the links between economies' export reliance and the development of OTC FX markets

The Paz Activity Curve, 2018


The genesis of the Paz Activity Curve (PAC) came about during a Forex Datasource empirical study seeking to answer how two macro factors ꟷa nation’s gross domestic product (GDP) and foreign trade ꟷ impact foreign exchange (FX) trading volume across geographies. If we found an equilibrium level between FX trading activity and these macro factors, we also desired to understand how these equilibria evolved since 1990 when OTC electronic FX was in its infancy and following other modern milestones. 

Thanks to the ongoing Bank for International Settlements (BIS) triennial FX surveys, the world has a robust look at FX activity data going back to the 1990s for 53 nations. Our pairing of BIS FX data and World Bank’s macroeconomic data provides the basis to address questions such as: 

  • To what extent is FX trading activity level growth correlated to changes in a nation’s GDP and foreign trade?   
  • Is there an equilibrium between FX market development and macro factors that holds true for similar-sized economies? 
  •  Can our understanding of FX activity and a country’s macro factors help us identify the potential for new FX markets or forecast how a macro event will impact an established FX market?  

This report is aimed at senior FX market professionals who oversee FX activity globally or particular geographies for banks, government regulators, and large corporations.



Report insights drawn from the following sources: 

  • Proprietary estimates. Our proprietary estimates encompass FX activity level by geography, with annual frequency to complement BIS triennial surveys and coverage gaps in BIS surveys. 

  • Macroeconomic, trade, and trading secondary data. We evaluated World Bank 2017 GDP and trade statistics for 53 nations included in BIS Triennial FX surveys and for 145 nations not included in the same. 


Segmentation of global economies:


  • Multi Trillion Economies (MTEs) $2,000+ billion
  • Large Economies (LEs) $1,000 to $2,000 billion
  • Midsize Economies (MEs) $400 to $1,000 billion
  • Small Economies (SEs) $10 to $400 billion
  • Micro Economies (MIEs) Under $10 billion
  • Financial Center Economies (FCEs) US$300 to US$2,600 billion


  • Broadly speaking, the largest economies have a share of foreign trade that rarely surpasses 41% of GDP; this is true for the United States, Japan, China, India, and Brazil. Similarly, only two economies with annual GDP of more than US$1 trillion had an FX/GDP ratio greater than 20x: The United Kingdom (226x) and Australia (22x).

  • Euro-zone economies show a steady increase in external openness since the euro launch in 1999, but the evolution in FX markets varied markedly with some EZ nations seeing FX market growth (Netherlands, France, Spain) while others a regression (Germany, Italy). Potential causes could be associated to the overall FX footprint and commercial appetite of individual European banks (e.g., BNP Paribas, Société Générale in France, Deutsche Bank, Commerzbank in Germany) and the way in which these institutions organized their FX operations in Europe (e.g., from the continent or from London). 

  • The larger emerging economies, such as India, Brazil, and Argentina have developed their economies many fold since 1990, but their openness to foreign trade and their FX markets have grown at much lower rates than similar-sized, more developed economies. Brazil, however, has one of the largest on-exchange FX markets globally, a fact not reflected in the BIS FX surveys. 

  • China, too, developed its economy at a much faster rate than its FX markets until recently – the last four years or so – at which point Chinese authorities prioritized the need to have its own best-of-breed infrastructure to support FX and money market trading activities. Still, China’s FX market development gap is large and if we were to exclude Hong Kong’s FX activity, China’s 2017 FX turnover would be the lowest among MTEs (1.5x of GDP). 

  • PAC and dual momentum line analysis show that countries in any of the groups studied behaved often in like-manner rising/falling or shifting sideways in tandem. The equilibrium between foreign trade, GDP, and FX trading activity changes over time for each country and is sensitive, as we expected, to global macro events such as the 2007-2008 credit crisis or national policy changes like the 2015 Swiss franc devaluation

  • The dual momentum lines also show a positive correlation in FX trading and GDP growth rates; since 2010, FX trading volume has decelerated globally at a slightly higher rate than the deceleration rate seen for GDP or foreign trade. 

  • Multi-decade PAC analysis illustrates how economies with GDPs of US$400 billion to US$2 trillion exhibited a higher level of external openness than those above that threshold; midsized economies (GDP of US$400 billion to US$1 trillion) showed both a higher incidence of external openness and FX trading activity over time compared to larger economies.