Non-deliverable forwards: 2013 and beyond

n-deliverable forwards (NDFs) allow investors and borrowers to take positions in currencies that are subject to official controls. Turnover in NDFs has risen in recent years as non-residents use them to hedge increasing investment in local currency bonds. Pricing in deliverable forward and NDF markets is segmented, with NDFs leading in times of strain. Experience shows that NDF markets tend to fade away gradually after liberalisation. But, looking ahead, market centralisation might reduce the costs of maintaining them. In a unique development, offshore deliverable renminbi forwards are gaining on the established NDF.