From MBA Think Tank Encyclopedia (https://wiki.mbalib.com/)
offshore finance market
What are offshore financial markets
The offshore finance market refers to an international financial market that mainly provides non-residents with overseas currency lending or investment, trade settlement, foreign exchange gold trading, insurance services and securities transactions and other financial businesses and services. It is also called the offshore financial market. Its characteristics can be simply summarized as market transactions are mainly non-residents and are basically not restricted by the laws and tax systems of the host country. The rise of the offshore financial market in the 1960s brought the development of the international financial market into a new stage of development.
Characteristics of offshore financial markets
Compared with the onshore financial market, the offshore financial market has some obvious characteristics:
(1) The market scope is broad, the scale is huge, and the financial strength is strong.
(2) The lending relationship in the market is the relationship between non-resident borrowers and lenders.
(3) The market is basically not subject to the financial regulations and foreign exchange controls of the host country's government authorities.
(4) The market has a relatively independent interest rate system.
Reasons for the rise of offshore financial markets
After the 1950s, international economic relations underwent a series of major changes:
First, many countries have gained political independence and are eager to have an international financial market that can provide them with funds that are free to borrow and lend without the jurisdiction and influence of any country.
Second, multinational companies have achieved tremendous development. They not only promote the internationalization of production through foreign direct investment, but also the internationalization of capital. They urgently require a flexible and free capital lending market to meet the needs of rapid development of international business and frequent capital mobilization.
Third, some short-term capital holders, in view of the relative decline in the overall status of the US dollar and the need for capital evasion, also require a capital "refuge" that is not subject to the laws and regulations of various countries.
Fourth, since the 1950s, the United States has had continuous international balance of payments deficits, and a large amount of U.S. dollars have flowed abroad, forming the "Eurodollar market," that is, the overseas U.S. dollar market. After the 1960s, the European Federal German Mark, the European French Franc, the European Dutch Guilder and other foreign currencies also appeared in this market, thus making the Eurodollar market develop into a European currency market.
The European currency market is a new type of international financial market. This kind of financial market first appeared in London, and was later opened in Singapore, New York, Tokyo, Hong Kong and other places.
Types of offshore financial markets
From different perspectives, there are different types of offshore financial markets. From the perspective of business scope, there are hybrid, separated, tax avoidance and leakage offshore financial markets; from the perspective of the driving force of market formation, there are natural gradual formation and government-promoted offshore financial markets; from the perspective of market functions, there are world centers, financing centers, funding centers and bookkeeping centers. Below we only examine the types of offshore financial markets from the perspective of market business scope.
1. Hybrid offshore financial market
Characteristics of this type of offshore market: The currency of offshore financial transactions is a currency other than the country where the market is located. In addition to offshore financial business, non-residents are also allowed to operate onshore business and domestic business, but they must pay deposit reserves and relevant tax contributions. There are no restrictions on management, and there is no need to apply for approval from the financial authorities to operate offshore business. The offshore financial market in Hong Kong, my country, belongs to this type.
2. Separate offshore financial market
It refers to an offshore financial market that has no actual offshore capital transactions and only handles accounting services for other market transactions. The characteristics of this type of offshore market: the currency operated by offshore business can be overseas currency or domestic currency, but offshore financial business and traditional business must set up separate accounts; domestic banks and foreign banks operating offshore business must apply for approval from the financial authorities; operating offshore Onshore business is exempted from paying deposit reserves and deposit insurance, and enjoys interest withholding tax. It refers to an offshore financial market that separates offshore business from onshore business, and residents' deposit business from non-resident deposit business, but allows funds in offshore accounts to be loaned to residents. Exemption from local taxes. Offshore financial markets such as New York, Tokyo, and Singapore belong to this type.
3. Tax haven or tax haven type offshore financial market
The characteristics of this type of offshore market are: stable political situation, low taxes, and no financial controls where the market is located, which allows international financial institutions to achieve the purpose of evading capital supervision and reducing or exempting taxes. The Bahamas, Cayman and Bermuda, among others, fall into this category.
4． Leaky offshore financial markets
This type of offshore market has the characteristics of both London type and New York type, but the most prominent feature is that offshore funds can be loaned to residents, that is, domestic enterprises can directly raise funds in the offshore financial market.
The role of offshore financial markets
The emergence and development of the offshore financial market is conducive to the inflow of a large amount of international capital, filling the domestic funding gap, and enabling domestic market entities to raise funds in more flexible ways and channels; it is conducive to narrowing the time and space distance between financial markets in various countries, and facilitating the global reduction of international lending capital costs; it is conducive to the introduction of a large number of modern financial technology tools and financial products, promoting East Asia Domestic counterparts in the host country improve their business management methods, improve service quality and the quality of employees, and accelerate financial innovation; it is conducive to accelerating the host country's financial supervision to move closer to international practices and improve the quality of supervision; it is conducive to increasing foreign exchange income and increasing the country's foreign exchange reserves; it is conducive to regulating the host country's international balance of payments, stabilizing the international economic and financial order; it is conducive to bringing extensive economic benefits.
As a highly free, flexible, fast, convenient and efficient new market, the establishment of the offshore financial market must meet the following conditions: the political and economic stability of the host country or region; a developed domestic financial market, a complete financial system and experienced and efficient financial institutions; flexible and free financial regulations and fiscal and taxation policies that are conducive to market development, the relaxation or elimination of foreign exchange controls, relaxation of financial management, and tax exemptions; and a relatively superior economic and natural geographical location.
Retrieved from "https://wiki.mbalib.com/wiki/%E7%A6%BB%E5%B2%B8%E9%87%91%E8%9E%8D%E5%B8%82%E5%9C%BA"
