Development and Functioning of FX Markets in Asia and the Pacific

58 Pages Posted: 19 Oct 2015

See all articles by Richard M. Levich

Richard M. Levich

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Frank Packer

Bank for International Settlements (BIS)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2015


Global foreign exchange (FX) trading volume in traditional FX products and derivatives in Asia and the Pacific has expanded rapidly over the last 15 years, more so than in other regions. Asian currencies also have experienced exceptional growth in offshore turnover, including that of non-deliverable forwards (NDFs). Trading activity on this scale, spread across many countries and currencies, underscores the need for a smoothly functioning infrastructure and exceptional risk management processes. While settlement risks are mitigated for the vast majority of turnover through systems such as CLS Bank, the Asia-Pacific region would benefit by having more countries and currencies become CLS-enabled or tradable under other payment-versus-payment (PVP) systems. Although their volatility was less pronounced than during the global financial crisis, FX markets in the region experienced added turbulence during the “taper tantrum” of 2013. High-turnover currencies tended to depreciate more after the taper announcements, although volatility rose more sharply in currencies with low turnover. The FX market is a prominent venue for carry trades that are subject to crash risk. While there is some evidence of herding behaviour exacerbating this risk over the past decade, the measures calibrated more recently do not suggest exceptional crowding into carry trades ahead of the “taper tantrum” in 2013. At the same time, our measures of crowdedness for the carry trade show considerable variation over time. It might be useful to make crowdedness measures publicly available.

Full publication: Cross-Border Financial Linkages: Challenges for Monetary Policy and Financial Stability

Suggested Citation

Levich, Richard M. and Packer, Frank, Development and Functioning of FX Markets in Asia and the Pacific (October 2015). BIS Paper No. 82e, Available at SSRN:

Richard M. Levich (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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National Bureau of Economic Research (NBER)

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Frank Packer

Bank for International Settlements (BIS) ( email )

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