Foreign exchange markets in Asia-Pacific

A report by a Study Group established by the Asian Consultative Council of the Bank for International Settlements

Under the direction of the Asian Consultative Council of the BIS, in April 2021 the BIS Representative Office for Asia and the Pacific established a Study Group on "Foreign exchange (FX) markets in Asia-Pacific". The Study Group comprises members from the central banks and monetary authorities of Australia, China, Hong Kong SAR, India, Indonesia, Korea, Malaysia, New Zealand, the Philippines, Singapore and Thailand, as well as observers from the Bank of Japan. The Study Group's report examines how central banks can strengthen FX market monitoring, help develop deep and efficient FX markets, encourage the widespread use of FX hedging, and dampen the impact of FX volatility on domestic financial markets.

The report begins with an overview of local FX markets in the Asia-Pacific region and central bank engagement in them. It then provides key observations and policy takeaways in the following three areas: FX market monitoring and surveillance, FX hedging markets and their development, and broader considerations for FX market structure and capital flows. The analysis draws on a survey among the Study Group members, the BIS Triennial Central Bank Survey of Foreign Exchange and Over-the-counter Derivatives Markets, other official sector sources, commercial data sources, and country case studies supplied by the members. The report highlights the importance of smoothly functioning FX spot and derivatives markets when regional central banks operate macro-financial stability frameworks in response to volatile exchange rates and capital flows.