Offshore Currency Markets: Non-Deliverable Forwards (NDFs) in Asia

IMF Working Paper Series 2020

27 Pages Posted: 19 Oct 2020

See all articles by Jochen Schmittmann

Jochen Schmittmann

International Monetary Fund (IMF)

Han Teng Chua

International Monetary Fund (IMF)

Date Written: October 16, 2020

Abstract

Non-deliverable forward (NDF) markets in many Asian emerging market currencies are large, rapidly growing, and often exceed onshore markets in transaction volume. NDFs tend to price significant depreciation during market stress episodes including COVID-19. Spillovers from NDFs to onshore markets are a policymaker concern. Our analysis shows that influences tend to run both ways after controlling for differences in timezones between markets. For the COVID-19 pandemic there is some evidence of NDFs leading onshore markets for a few currencies. Policy approaches to NDFs vary widely across Asia from close integration with onshore markets to severe restrictions on NDF trading.

Keywords: Currency Markets, Offshore Markets, Non-Deliverable Forwards, NDF, DNDF

JEL Classification: F31, G12, G13, G15

Suggested Citation

Schmittmann, Jochen and Chua, Han Teng, Offshore Currency Markets: Non-Deliverable Forwards (NDFs) in Asia (October 16, 2020). IMF Working Paper Series 2020, Available at SSRN: https://ssrn.com/abstract=3712773 or http://dx.doi.org/10.2139/ssrn.3712773

Jochen Schmittmann (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Han Teng Chua

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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