Book contents
- The Changing Fortunes of Central Banking
- The Changing Fortunes of Central Banking
- Copyright page
- Contents
- Figures
- Tables
- Contributors
- Acknowledgement
- 1 Introduction and Overview
- Part I Monetary Economics and Policy
- Part II Financial Stability and Regulatory Policy
- Part III Foreign Exchanges and International Architecture
- 14 The Case for (and Requirements of) Monetary Unions
- 15 Machines versus Humans
- 16 The Case for Flexible Exchange Rates Revisited
- 17 Cross-Border Banking and Monetary Independence
- 18 International Liquidity
- Part IV The Millennium Challenges of Central Banks
- Index
- References
15 - Machines versus Humans
Will Human Forex Dealers Become Extinct?
from Part III - Foreign Exchanges and International Architecture
Published online by Cambridge University Press: 29 March 2018
Book contents
- The Changing Fortunes of Central Banking
- The Changing Fortunes of Central Banking
- Copyright page
- Contents
- Figures
- Tables
- Contributors
- Acknowledgement
- 1 Introduction and Overview
- Part I Monetary Economics and Policy
- Part II Financial Stability and Regulatory Policy
- Part III Foreign Exchanges and International Architecture
- 14 The Case for (and Requirements of) Monetary Unions
- 15 Machines versus Humans
- 16 The Case for Flexible Exchange Rates Revisited
- 17 Cross-Border Banking and Monetary Independence
- 18 International Liquidity
- Part IV The Millennium Challenges of Central Banks
- Index
- References
Summary
The market microstructure of the foreign exchange markets has gone through many changes in the last thirty years. By the early 2000s, the interbank human brokers were almost all replaced by electronic broking systems, which centralised interbank trading. From the mid-1990s, bank computers, and later other financial institutions’ ones, with algorithmic trading programs were allowed to be connected to the electronic broking computers directly. On the one hand, bank computers made the market more efficient and more liquid, eliminating market anomalies. On the other hand, high frequency trading strategies turned away human dealers. Many microstructure changes in the 2010s, such as minimum quote life and retreating from decimalisation to half pip price unit, were designed to protect human dealers. The most recent innovations in the market is the emergence of dark pools, where banks operate in-house order matching systems, that takes trading away from electronic broking systems. Although dark pools may increase efficiency by allowing netting of orders at the bank level, transparency may be a concern. Human dealers may provide heterogeneity among market participants that may prevent a potential flash crash.
- Type
- Chapter
- Information
- The Changing Fortunes of Central Banking , pp. 240 - 259Publisher: Cambridge University PressPrint publication year: 2018
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