Offshore Markets for the Domestic Currency: Monetary and Financial Stability Issues

32 Pages Posted: 30 Oct 2010

See all articles by Dong He

Dong He

Hong Kong Monetary Authority; Hong Kong Institute for Monetary Research (HKIMR)

Robert N. McCauley

Bank for International Settlements (BIS)

Date Written: September 1, 2010

Abstract

We show in this paper that offshore markets intermediate a large chunk of financial transactions in major reserve currencies such as the US dollar. We argue that, for emerging market economies that are interested in seeing some international use of their currencies, offshore markets can help to increase the recognition and acceptance of the currency while still allowing the authorities to retain a measure of control over the pace of capital account liberalisation. The development of offshore markets could pose risks to monetary and financial stability in the home economy which need to be prudently managed. The experience of the Federal Reserve and of the authorities of the other major reserve currency economies in dealing with the euromarkets shows that policy options are available for managing such risks.

Keywords: Offshore Markets, Currency Internationalisation, Monetary Stability, Financial Stability

JEL Classification: E51, E58, F33

Suggested Citation

He, Dong and McCauley, Robert N., Offshore Markets for the Domestic Currency: Monetary and Financial Stability Issues (September 1, 2010). BIS Working Paper No. 320. Available at SSRN: https://ssrn.com/abstract=1699740 or http://dx.doi.org/10.2139/ssrn.1699740

Dong He

Hong Kong Monetary Authority

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Hong Kong Institute for Monetary Research (HKIMR)

3 Garden Road, 8th Floor
Hong Kong
China

Robert N. McCauley (Contact Author)

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

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