Foreign Exchange (FX) is the global practice of trading one currency with another, with trillions of dollars changing hands daily, making it the world’s largest and most liquid market.

FX rates are by nature volatile, shaped by market forces of supply and demand, monetary conditions, capital controls and global regulation.

Over the last twenty years, APAC has been home to some of the world’s fastest-growing economies, such as China, India, and the ASEAN countries, all involving complex cross-border trading and currency conversion.

Businesses in APAC face unique challenges in cross-border transactions due to varying monetary and regulatory conditions.

Namely, the APAC FX markets are dynamic and volatile, requiring up-to-the-minute data to ensure opportunities are maximised while risks are minimised.

Additionally, the regulatory landscape in APAC can vary widely from one country to another, adding complexity to moving money across borders.

Furthermore, there is a wide range of currencies, many of which are restricted, limiting the ability of businesses to send or receive money and therefore trade with certain currencies.

Here we explore the challenges FX poses to APAC’s businesses – expense, delay, uncertainty, and risk – and highlights the ways the region’s governments, banks and fintechs are finding ways forward.

More restricted currencies are at play in the East

Singapore is home to the third largest FX center in the world, after the UK and the US, with the country’s share of global FX volumes rising to 9.5% in April 2022.

Yet despite Singapore’s leading role as an FX hub, the varied nature of APAC’s regulations and the volatility of restricted currencies pose challenges to businesses within the region.

One reason for this is that there is no single regulator of APAC currency, unlike the euro (EUR) which is governed by a single regulatory body, the European Central Bank.

Individual countries in APAC have their own regulators. For example, the Australian dollar (AUD) is regulated by the Reserve Bank of Australia, the Singapore dollar (SGD) is regulated by the Monetary Authority of Singapore, and the Bangko Sentral regulates the Philippine peso (PHP).

Markets in APAC are also exposed to an extensive list of restricted currencies which includes the Chinese Yuan (CNY/CNH), South Korean Won (KRW), the Malaysian Ringgit (MYR), the Indian Rupee (INR) and the Indonesian Rupiah (IDR).

The cost of cross-border payments includes the fluctuations of FX rates across markets, this rise is more so in APAC when trading with restricted currencies

The evolution of cross-border payments

Despite the hurdles of restricted money currencies and the varied regulatory landscape, money movement across the region continues to evolve thanks to tech-literate consumers and an increasingly digitised society.

Exchanges are inherently cross-border in nature: the rise of the gig economy, import and export trades, ecommerce and marketplaces are visible results of this evolution.

Two examples of growth in cross-border transactions are Australia and China. In September 2022, cross-border business to consumer (B2C) ecommerce purchases in Australia made up 8% of total online retail, while in China cross-border sales have grown 5% year on year between 2021 and 2022.

How FX has unique impacts on businesses in APAC

Trading of currency pairs are done on both a retail and corporate level, and corporates tend to be risk-adverse FX market participants because their trades can significantly impact cash management and liquidity control.

Depending on the use case, context and corridor of a cross-border payment, APAC-based businesses have traditionally used correspondent banking networks to meet their service needs.

However, many small and medium enterprises (SMEs) are underserved by traditional banks which can charge a fee for each leg of the transaction especially when intermediary banks are involved.

These expenses can significantly impact a business’ profitability and efficiency. This has led to many SMEs seeking out FX and money movement services from neobanks and fintechs offering competitive FX pricing and other value-added services.

The region’s governments, central banks, financial institutions and fintechs are striving to improve cross-border money movement across APAC.

In ASEAN, the main vehicle for pursuing integration has been the Roadmap for Monetary and Financial Integration, endorsed by the ASEAN Finance Ministers in 2003.

This has led to a focus on financial services liberalisation, capital market development, and capital account liberalisation.

The ASEAN Economic Community Blueprint of 2025 continues in this vision, stating that one of its core undertakings is to continue and build on The ASEAN VISION 2020, which is to help create sustainable and highly integrated economies within the region with a seamless movement of investment, skilled labour and capital.

In March 2021, twelve Asian Consultative Council (ACC) member central banks formed the Study Group on Foreign Exchange (FX) Markets in Asia-Pacific with the goal of strengthening FX market monitoring, developing efficient FX markets and lessening the impact of FX volatility on domestic financial markets.

March 2023 saw a successful trial of the multi-party Project Nexus involving the Bank for International Settlements (BIS), Monetary Authority of Singapore (MAS) and Bank Negara Malaysia (BNM) to facilitate the speed, access and transparency of cross-border payments with the aim of supporting the G20 goal of instant money transfer among the EU, Singapore and Malaysia.

The region’s fintechs, too, are helping mitigate the effects of the region’s volatile FX markets, giving businesses access to competitive FX rates so they can plan and allow for liquidity, with profit maximisation at the core of business’ transactions.

Explore how B2B embedded cross-border solutions provider Currencycloud can help simplify and streamline your cross-border payments, and address the complexities of the region’s FX markets here.