For Ritesh Kumar Singh, founder of research and advisory firm Indonomics Consulting Pvt Ltd, getting paid by his clients—most of which are based abroad—comes with an associated heartache. For every overseas payment that comes in, bank margins on the foreign exchange (forex) prices result in him losing about 2-3% of his income.
In August last year, the Reserve Bank of India (RBI), the country’s central bank, presented a solution for small business owners like Singh. It launched FX-Retail, a retail forex trading platform that anyone—from individuals to small businesses and payment banks—could log on to and book a forex price at or near market rates.
FX-Retail is akin to an exchange. Banks offer, bid, and compete on currency prices. Customers buy and sell currency. Once a trade is confirmed, the final settlement occurs bilaterally outside the platform, exactly as it would without the platform. Only, this time around, the exchange rate is market-determined.
The RBI did this to make retail forex prices more transparent. In a discussion paper discussion paper Reserve Bank of India Discussion paper on foreign exchange trading platform for retail participants Read more it released back in 2017, it saw the retail trading platform as a way to ensure fair prices in the retail forex market, ensuring low-volume customers weren’t disproportionately penalised. This, the central bank said, was in response to frequent queries and complaints from customers about unfair forex margins.
RBI has grand plans for the platform. FX-Retail is to have currency forwards currency forwards Currency forward A currency forward is a binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. soon, which will help cross-border businesses hedge against currency volatility. Despite its novelty—there isn’t a similar state-owned platform anywhere in the world—and ambition, FX-Retail hasn’t drawn customers the way the RBI had hoped.
In the first week of March, well before the country entered a nationwide lockdown, the platform was seeing around 31 trades each day. The daily average volume of trades was nearly $3.3 million, according to data from the Clearing Corporation of India Limited (CCIL)—a government-owned company that clears and facilitates transactions—which built and now operates the platform. Since then, the number of daily trades has fluctuated between 15 to 40, with daily volumes sometimes dropping as low as $1 million. In contrast, the daily average volume of the forex market as a whole in India is about $33 billion $33 billion Reserve Bank of India Report of the Internal Working Group on Comprehensive Review of Market Timings Read more .