Asia’s Currency Fight Moves Offshore as Central Banks Push Back

brhrbqhpm5vnmic7qd2{cv{2_media_dl_1.png BIS 2025 Survey, Deutsche Bank

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(Bloomberg) — Asian central banks are increasingly facing currency pressures originating outside their borders.

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From South Korea to India and the Philippines, policymakers have ramped up efforts to curb offshore forex speculation as high oil prices, foreign fund exodus and a strong dollar pressure regional currencies.

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South Korea’s finance ministry said on Sunday it will step up oversight of offshore currency derivatives. The Philippines has asked banks to ensure non-deliverable forward contracts are limited to economic purposes, while India has tightened limits on banks’ net open position to $100 million. 

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Indonesia, which unexpectedly raised interest rates on Tuesday, has said its central bank is active in currency markets “around the world, around the clock” to support the rupiah.

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The warnings underscore concerns among Asian policymakers that offshore trading is adding to pressure on currencies. The oil-price shock from the US-Iran conflict has worsened the problem, hitting the region’s energy-importing nations. Indonesia’s rupiah breached the closely watched 18,000-per-dollar level, the Korean won has fallen to its lowest since the global financial crisis, while the Indian rupee and Philippine peso have hit record lows.

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The efforts to curb offshore forex trading may help ease some pressure, but analysts doubt they can reverse the trend on their own.

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“It may have some impact, but ultimately for the measure to be successful there needs to be a shift in the fundamentals as well,” said Michael Wan, senior currency analyst at MUFG Bank Ltd. 

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Non-deliverable forwards are cash-settled derivative contracts that allow investors to hedge or speculate on currencies outside local markets. They make up for about 4% of the global $10 trillion a day FX market, according to Deutsche Bank AG, though they can play an outsized role in Asia where restrictions on convertibility are common. 

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That means activity driven out of global financial hubs such as Singapore, London and New York can sway local markets.

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Authorities across the region have tried to reduce this influence during periods of currency stress. 

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India allowed local banks to participate in the NDF market in 2020 and has since tried to attract activity onshore to its finance hub at Gujarat International Finance Tec-City, or GIFT City. South Korea has opened its forex market to overseas investors and extended trading hours, while Thailand has allowed non-resident corporates to access onshore baht liquidity and hedge freely. 

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“The reason the NDF market exists is due to restrictions in the onshore market,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group. If those restrictions are eased and there is enough liquidity, the need for NDFs will gradually fade, as seen in the case of the Singapore dollar and Thai baht, he said.

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Short-Dollar Book

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Yet, the war-induced crisis has left some central banks with little choice but to intervene in those very markets they’ve been warning against. That defense has contributed to the drop in foreign-exchange reserves in the region.