Offshore Currency Markets: Non-Deliverable Forwards (NDFs) in Asia
28 Pages Posted: 30 Oct 2020
Date Written: September 2020
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: Currencies, Currency markets, Banking, Depreciation, Foreign exchange, WP, NDF market, onshore market, NDF pricing, NDF trading, NDF volume, Philippine peso
JEL Classification: F31, G13, G15, E42, G21, E22
Suggested Citation: Suggested Citation