Posted by Colin Lambert. Last updated: December 23, 2025
New technologies such as AI, stablecoins and tokenised deposits are likely to affect FX markets and market structure, but while bringing some potential benefits, risks could also rise, according to Anna Nordstrom, head of the Markets Group at the New York Fed.
Stablecoins and tokenised deposits are creeping into the sphere of the currency market as the payments infrastructure undergoes an upgrade, she said, adding the adoption of these tools will accelerate the speed of trading and extend liquid trading hours in the FX market. She also noted that as a result, liquidity risks and volatility could also rise.
AI, meanwhile, will likely be increasingly deployed in workflow processes to increase efficiency and it could be included in automated trading strategies like algorithm execution, which could result in trade sizes decreasing further,” Nordstrom suggested. While this could lead to more efficient execution for large orders, she warned it could potentially increase opaqueness and impact market participants’ ability to identify emerging risks.
“Looking ahead, innovation will remain an important factor in the evolution of FX market structure,” she said. “Some key technological advances, which could have a range of impacts, may affect both the overall structure of the FX market and how FX trades.”
Nordstrom’s speech also reflected upon 2025, during which she observed that despite heightened uncertainty about US trade policy, available data showed little evidence that foreign-denominated asset allocation changed even as diversification away from the dollar became a topic of discussion. One factor in this lack of movement is the lack of alternatives to the greenback and another is the relatively high returns investors can get on dollar-based investments compared with other jurisdictions,” she suggested.
Where US policy had a noticeable impact is hedge ratios, with many fund managers increasing their hedging activity around dollar-based assets, especially as the dollar depreciated in April. “This comes following an environment over recent years where hedge ratios have been reportedly stable at historically low levels,” Nordstrom said.
This is borne out of data from the BIS Triennial Survey, which showed a 42% increase in spot FX activity since 2022 and an even larger volume growth for forwards and options, which were up 60% and 109%, respectively. Nordstrom said that while it’s difficult to link the two directly, the sharp increase points to a raise in hedging activity.
She also noted that during times of elevated volatility in 2025, FX markets withstood pressures and proved to be resilient, with fairly stable bid-ask spreads, market depth, and price impact measures holding steady during elevated volumes and activity.
“It is essential that the structure of the market can accommodate a diverse set of market participants in reliably executing transactions, even amid periods of heightened volatility. The market is not one-size-fits-all,” Nordstrom added.
![Government officials pose for a photo before an inter-ministerial meeting on measures to strengthen foreign currency liquidity held at the government complex in Jongno District, central Seoul, on Dec. 18. From left, Financial Supervisory Service Gov. Lee Chan-jin, Deputy Prime Minister and Finance Minister Koo Yun-cheol, Financial Services Commission Chairman Lee Eog-weon and Bank of Korea Senior Deputy Gov. Ryoo Sang-dai. [YONHAP]](https://charm-retirement.com/wp-content/uploads/2025/12/ac07d7fc-9fd0-4527-8d58-14e318c230d8-1024x665.jpg)