Finadium
November 2019

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Asian financing markets are working well; there is no indication that for individual market participants, not using repo is causing any difficulty. For the market as a whole however, a lack of repo means that corporate and government bonds are losing an important piece of liquidity that could aid in the development of the region’s capital markets and help local companies raise money at lower cost.

A loss of potential repo activity also hinders a regional goal of moving away from the US dollar towards local currencies. A strong demand for dollars keeps the FX swaps market healthy, but part of this is because there are few other means for some countries to access their local currency for financing in international markets. Repo markets for domestic bonds would enable more business to be conducted in their currencies, leading to a reinforcing cycle of economic development.

This report is an investigation of local currency repo markets in Asia. It provides market sizing using a combination of Finadium survey, government and private sector data. It looks at the root causes of why repo in Asia is still in early stages of adoption and what alternatives may be available for policy makers and market participants to prioritize repo over unsecured loans and FX swaps. It concludes with a discussion on why a Pan-Asian stablecoin based on collateral may make more sense in Asia than other parts of the world.

This report should be read by any funding or financing market participants with interests in the Asian region.

Table of Contents

  • Executive Summary
  • What Asia Loses Without Repo
    • – Which Asian Markets?
  • Sizing Tri-party, Bilateral and CCP Markets
  • Product Competition: Foreign Exchange and Unsecured Loans
  • The Pan-Asian Collateral Basket Idea
    • – The Almighty Dollar vs. the Pan-Asian Collateral Basket
    • – An Opportunity for Total Return Futures
  • Culture, Not Infrastructure
  • Appendix A: The Argument for a Pan-Asian Stablecoin
  • About the Author
  • About Finadium LLC
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