Offshore dollar demand weakens emerging-market spot exchange rates
A $1 billion offshore dollar-buying imbalance accompanies about 10 basis points of domestic currency depreciation in Bank for International Settlements (BIS) research published October 16, 2026. Offshore forward rates respond by about 18 basis points.
Dealer hedges carry pressure onshore
Gerardo Ferrara, Andreas Schrimpf, Ganesh Viswanath-Natraj and Zijie Wang study LCH ForexClear transactions across ten emerging-market currencies during 2013–2025.
The sample averages roughly 5,500 trades and $30 billion daily.
A $1 billion long-dollar imbalance accompanies about 10 basis points of spot depreciation and 18 basis points offshore, with the latter estimate less precise.
Their model transmits non-deliverable forward (NDF) demand through dealer spot hedges; capital controls constrain arbitrage and sustain forward spreads.
Spot responses range from 17.8 to 7.1 basis points as dealer gross positions rise from one standard deviation below their mean to one above.
Prices adjust within minutes; onshore venues lead price discovery in the most active pairs.
Access rules reshape forward spreads
China's August 11, 2015 parity reform preceded roughly 190 basis points of spread widening.
Malaysia's November 11, 2016 restrictions preceded spread compression as offshore demand weakened.
The Reserve Bank of India opened offshore rupee NDF access to eligible Indian banks on March 27, 2020, effective June 1, 2020; spreads subsequently narrowed.
Its April 1, 2026 restrictions preceded widening beyond 80 basis points, versus about 3 in the first quarter.
The authors link India's contrasting outcomes to changes in cross-market intermediation costs.
Association is not causation
The authors caution that daily regressions identify associations, not causal price effects.
Dealer positions measure market conditions rather than unused capacity.
The sample excludes uncleared bilateral trades, and transaction data end in December 2025, leaving the 2026 India episode without order-flow evidence.