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

28 Pages Posted: 30 Oct 2020

See all articles by Jochen Schmittmann

Jochen Schmittmann

International Monetary Fund (IMF)

Chua Han Teng

affiliation not provided to SSRN

Date Written: September 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: 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

Schmittmann, Jochen and Teng, Chua Han, Offshore Currency Markets: Non-Deliverable Forwards (NDFs) in Asia (September 2020). IMF Working Paper No. 20/179, Available at SSRN: https://ssrn.com/abstract=3721204

Jochen Schmittmann (Contact Author)

International Monetary Fund (IMF) ( email )

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

Chua Han Teng

affiliation not provided to SSRN

No Address Available

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