Posted by Eva Szalay. Last updated: May 5, 2026
With all the goings on in the world, opportunities are aplenty in foreign exchange markets nowadays. This is clearly showing up in banks’ first quarter results which are all heavy with references to FICC trading and the successes of these divisions amid conditions of elevated volatility.
On the whole, US banks have outdone their European peers in the first quarter, but Deutsche Bank managed to nearly match last year’s record. Citi’s fixed income markets division clocked up 13% YoY growth, with rates and currencies up 6% “driven by higher FX volumes and optimisation of the balance sheet.” JP Morgan’s markets revenue ticked 20% higher compared with 2025 while fixed income markets registered a 21% growth. The latter produced $7.1 billion, driven by “higher revenue on strong client activity in Commodities, Credit and Currencies & Emerging Markets.” BofA also managed 2% growth in its FICC business to generate $3.5bn. UBS revenues for currencies, rates and credit stood at $921mn, up 38% YoY, while DB’s revenues in FIC produced revenues of € 2.9 billion.
This is great news for FX markets but who says it can’t be better? A panel at our recent event in Copenhagen got me thinking about emerging markets FX and, naturally, stablecoins. This is because in a recent paper the BIS concluded that these digital tokens are already having a major impact on the $9.6 trillion-a-day FX markets and nowhere more so than in EM.
It sometimes strikes me that the currencies industry can be a bit blinkered: the absolute fight that banks wage and the resources they sink into staying on top of EUR/USD for not much margin is insane, especially when one thinks about the fact that growth is happening elsewhere. BIS triennial FX surveys show that the EM segment counted for 29% of the nearly $10 trillion total, up from just 10% in the decade after the turn of the millennium. (This is of course partly causing the industry’s little issue vis-a-vis settlement, as the BIS estimates that $2.2 trillion is settling without PvP protection.)
EM is clearly growing. Another clear pattern is the impact of stablecoins on FX rates, particularly in markets where liquidity is less deep than elsewhere. The BIS said that there is quantifiable evidence that “an exogenous surge in stablecoin demand depreciates the local currency in the traditional spot market and raises the cost of obtaining dollars through FX swaps.”
There is opportunity aplenty, and this bodes well for FX…The question is who will be first to take a stab?
The reason for these spillovers is that intermediaries that connect that stablecoin and TradFi markets often have limited balance sheet capacity, meaning that higher stablecoin demand forces these brokers and on-ramp providers to adjust their positions in markets, transmitting pressure to exchange rates and funding costs. These markets tend to also have the least activity from arbitrage traders, making these price gaps even more pronounced. In essence, there are two prices for the dollar in many EM countries. This feels like a little bit of an opportunity, considering that more than 70% of inflows into dollar stablecoins (currently a more than $300 billion space) originate from a different currency, making them essentially FX trades.
The BIS working paper made this point empirically decisive: using daily data on four USD-pegged stablecoins (USDT, USDC, DAI, BUSD) across 27 fiat currencies and 64 exchanges from January 2021 to November 2025, the authors documented large and persistent price gaps — parity deviations — between acquiring a dollar via a stablecoin and via the spot FX market. The paper found that a 1% exogenous increase in stablecoin inflows widens parity deviations by 40 basis points, depreciates the local currency, and widens CIP deviations. The spillover ratio is ~0.15 at the aggregate level and materially higher for emerging-market currencies.
Granted, some of these countries can be a little bit problematic from a regulatory and sanctions perspective, but many aren’t. According to data provider Chainalysis, in the 12 months ending June 2025, APAC emerged as the fastest-growing region for on-chain crypto activity, with a 69% year-over-year increase in value received. Total crypto transaction volume in APAC grew from $1.4 trillion to $2.36 trillion, driven by robust engagement across major markets like India, Vietnam, and Pakistan, Chainlysis said.
Latin America followed close behind, growing 63%, reflecting rising adoption across both retail and institutional segments. Turkey, Nigeria, Brazil and Argentina consistently rank as the highest users of stablecoins, and the premium can hit as much as 30% in some cases. According to trading firm G-20 Group, this is the single clearest Alpha tradeable at the intersection of FX and crypto markets.
“Stablecoins are not a currency — they are distribution infrastructure for the dollar,” Dr Nagendra Bharatula, founder and CEO of G-20 Group says. “The implication for FX market makers is that the USD ‘last-mile’ in EM is migrating from correspondent banking and parallel-market cash counters to on-chain venues with transparent order books. Firms that can provide two-way liquidity across both venues simultaneously capture the premium.”
Firms that can provide two-way liquidity across two liquidity pools? That sounds almost like what banks do. Of course, there are major hurdles for banks to emerge in this role for now, Basel III being an obvious one. Still, market making isn’t the only way. There is opportunity aplenty, and this bodes well for FX. The question is who will be first to take a stab?
