Offshore dollar demand can move emerging-market currencies rapidly even when capital controls restrict direct access, according to new Bank for International Settlements research. The October 16 working paper examined centrally cleared non-deliverable forwards across ten currencies.

The authors used signed transaction-level order flow rather than quoted prices or aggregate volumes. Their sample covered trading from 2014 through 2025.

Offshore Dollar Demand Reaches Domestic Spot Markets

A $1 billion increase in long-dollar order flow weakened the relevant domestic spot currency by about 10 basis points within minutes. The offshore forward rate moved about 18 basis points, while the offshore-onshore spread widened.

That transmission matters because non-deliverable forwards settle in dollars without delivering the local currency. They let global investors take currency exposure outside the domestic market.

The result adds context to recent cross-border capital-flow data and the IMF’s emerging-market growth outlook.

Bank Capacity Shapes Offshore Dollar Demand Effects

The spot-market impact increased when dealer balance sheets were tight. Dealers hedge offshore positions through domestic spot markets, creating a channel from derivatives trading to local exchange rates.

Policy changes in China, Malaysia and India also showed how access rules affect the pricing gap. India’s gap narrowed after domestic banks gained offshore access in 2020, then widened when access was restricted in 2026.

Estimated response to $1 billion in offshore dollar demand

Domestic spot rate: about 10 basis points

Offshore NDF rate: about 18 basis points

Source: BIS Working Paper 1383, published October 16, 2026. Bars compare reported basis-point responses.

What Emerging-Market Investors Should Watch

The paper does not claim every currency reacts identically. It shows that regulation, dealer capacity and offshore speculative demand can alter both the speed and size of transmission.

For investors, offshore pricing gaps can signal stress that may later reach local markets. The mechanism also matters when government-bond diversification weakens, as discussed in the Fed’s recent safe-haven analysis.

The research is a working paper, so its conclusions are the authors’ views rather than formal BIS policy. Its data and methodology appear in BIS Working Paper 1383.

Sharron Kendi is a seasoned crypto market analyst and writer with over three years of experience decoding blockchain trends, price movements, and market dynamics. She holds a Bachelor’s Degree in Commerce (Finance) from Kenyatta University, blending a solid academic foundation with a sharp eye for technical analysis and a deep understanding of on-chain data. Her work delivers clear, data-driven insights that empower investors to navigate the fast-evolving digital asset space with confidence.