In 2018, the Bank of England reported $23 billion in offshore rupee trades, while RBI sources estimate deliverable daily onshore forwards at $21 billion for 2019, indicating that rupee’s offshore market has become bigger than the domestic market.
The RBI taskforce headed by Usha Thorat has recommended allowing rupee exchange rate derivatives on Indian soil in exchanges set up in GIFT city. The RBI, however, expressed reservations over worries of the impact on domestic market. However, that impact is also observed when there is a huge movement in the international (offshore) market.
Exchanges in GIFT city operate 22 hours a day and hence foreign portfolio investors would find it efficient to hedge their requirement on NDF which can now be on the GIFT city based exchanges, once RBI issues regulations.
RBI restricts the participation of resident entities in currency derivatives on Indian exchanges to the extent of their underlying exposures. A large market, outside the influence of regulatory authorities, undermines their effectiveness. And, at GIFT IFSC exchanges, all products in derivatives are permitted except rupee exchange rate derivatives.
are not a phenomenon peculiar to the rupee; they are common for currencies of many emerging market economies (EMEs). According to BIS data, NDFs in six currencies – Korean Won, Indian Rupee, Chinese Renminbi, Brazilian Real, Taiwanese Dollar and Russian Rouble – account for about two-thirds of the trade in NDFs globally. The total daily average volume in NDF markets
is about $ 200 billion according to a Bank of International Settlements (BIS) survey.
RBI allowed rupee futures and options settled in foreign currency
The daily volume in NDF markets is $200 bn
2/3rd of this volume is in currencies of Korea, India, China, Brazil, Taiwan and Russia
India's share is 18.22% of the trade in NDFs globally
In 2018, $23 bn was in offshore rupee trades
In 2019, onshore daily forward volume was $21 billion