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

Author

Listed:
  • Dong He

    (Research Department, Hong Kong Monetary Authority)

  • Robert N. McCauley

    (Bank for International Settlements)

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 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.

Suggested Citation

  • Dong He & Robert N. McCauley, 2010. "Offshore Markets for the Domestic Currency: Monetary and Financial Stability Issues," Working Papers 1002, Hong Kong Monetary Authority.
    • Handle: RePEc:hkg:wpaper:1002
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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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    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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