Offshore Markets for the Domestic Currency: Monetary and Financial Stability Issues
32 Pages Posted: 30 Oct 2010
Date Written: September 1, 2010
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: Suggested Citation