The Bank for International Settlements published a working paper finding that trading in offshore non-deliverable forwards (NDFs) transmits exchange rate pressure to domestic currency markets within minutes, even where capital controls restrict direct access to onshore markets. Using transaction level data on centrally cleared NDFs for 10 emerging market currencies over 2013–2025, the study estimates that USD 1 billion of net long dollar order flow depreciates the domestic spot rate by about 10 basis points and moves the offshore NDF rate by about 18 basis points. The larger offshore response reflects both the movement in the domestic exchange rate as dealers hedge their exposures and an additional premium for intermediating residual inventory. The impact on spot rates is greater when dealer balance sheets are tight, while offshore order flow also widens the gap between offshore and onshore forward rates. Policy episodes in China, Malaysia and India indicate that domestic banks’ ability to trade offshore affects this gap. It narrowed after Indian banks gained access to offshore rupee NDF markets in 2020 and widened when that access was restricted in 2026.
Bank for International Settlements study finds offshore forwards rapidly transmit currency pressure to emerging markets
A Bank for International Settlements working paper finds that USD 1 billion of offshore long dollar NDF order flow moves domestic emerging market spot rates by about 10 basis points and offshore rates by about 18 basis points. Capital controls do not prevent transmission, while restrictions on banks’ cross market activity can widen the gap between offshore and onshore prices.