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Offshore Markets for the Domestic Currency: Monetary and Financial Stability Issues

  • Dong He

    (Research Department, Hong Kong Monetary Authority)

  • Robert N. McCauley

    (Bank for International Settlements)

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 to see 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 on 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. Experience in dealing with the Euromarkets by the Federal Reserve and other authorities of the major reserve currency economies show that policy options are available for managing such risks.

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File URL: http://www.hkma.gov.hk/media/eng/publication-and-research/research/working-papers/HKMAWP10_02_full.pdf
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Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 1002.

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Length: 39 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:hkg:wpaper:1002
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  1. Glenn D. Rudebusch & Eric T. Swanson & Tao Wu, 2006. "The bond yield "conundrum" from a macro-finance perspective," Working Paper Series 2006-16, Federal Reserve Bank of San Francisco.
  2. Hans Genberg, 2009. "Currency Internationalisation: Analytical and Policy Issues," Working Papers 312009, Hong Kong Institute for Monetary Research.
  3. Francis E. Warnock & Veronica Cacdac Warnock, 2006. "International Capital Flows and U.S. Interest Rates," NBER Working Papers 12560, National Bureau of Economic Research, Inc.
  4. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking," BIS Quarterly Review, Bank for International Settlements, March.
  5. Naohiko Baba & Robert N McCauley & Srichander Ramaswamy, 2009. "US dollar money market funds and non-US banks," BIS Quarterly Review, Bank for International Settlements, March.
  6. repec:cup:cbooks:9780521845519 is not listed on IDEAS
  7. Robert N. McCauley & Guonan Ma & Yin-Wong Cheung, 2009. "Renminbisation des actifs internationaux de la Chine," Revue d'Économie Financière, Programme National Persée, vol. 95(2), pages 135-155.
  8. Anella Munro & Philip Wooldridge, 2011. "Motivations for swap-covered foreign currency borrowing," BIS Papers chapters, in: Bank for International Settlements (ed.), Currency internationalisation: lessons from the global financial crisis and prospects for the future in Asia and the Pacific, volume 61, pages 19-56 Bank for International Settlements.
  9. Robert N. McCauley & Rama Seth, 1992. "Foreign bank credit to U.S. corporations: the implications of offshore loans," Quarterly Review, Federal Reserve Bank of New York, issue Spr, pages 52-65.
  10. Dale W. Henderson & Douglas G. Waldo, 1980. "Reserve requirements on Eurocurrency deposits: implications for Eurodeposit multipliers, control of a monetary aggregate, and avoidance of redenomination incentives," International Finance Discussion Papers 164, Board of Governors of the Federal Reserve System (U.S.).
  11. Aliber, Robert Z., 1980. "The integration of the offshore and domestic banking system," Journal of Monetary Economics, Elsevier, vol. 6(4), pages 509-526, October.
  12. Cho-Hoi Hui & Hans Genberg & Tsz-Kin Chung, 2009. "Funding Liquidity Risk and Deviations from Interest-Rate Parity During the Financial Crisis of 2007-2009," Working Papers 0913, Hong Kong Monetary Authority.
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