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Offshore markets for the domestic currency: monetary and financial stability issues

Author

Listed:
  • Dong He
  • Robert McCauley

Abstract

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 in seeing 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 over 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. The experience of the Federal Reserve and of the authorities of the other major reserve currency economies in dealing with the euromarkets shows that policy options are available for managing such risks.

Suggested Citation

  • Dong He & Robert McCauley, 2010. "Offshore markets for the domestic currency: monetary and financial stability issues," BIS Working Papers 320, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:320
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    offshore markets; currency internationalisation; monetary stability; financial stability;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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