Onshore vs Offshore Rate
FundamentalsThe same currency priced in two pools at once — inside the jurisdiction and outside it — and why the two quotes are not interchangeable.
Where a currency is subject to controls, two prices for it can exist at once: an onshore rate, quoted in the domestic market under the rules that apply there, and an offshore rate, quoted between parties outside the jurisdiction who are not bound by them. They reference the same currency but form in separate pools of liquidity, with different participants and different constraints.
The two do not have to agree, and the gap between them is itself watched as an indication of how tightly the domestic market is constrained. Practically, the distinction decides what a quoted number means: a rate labelled with the onshore convention is not interchangeable with the offshore one, contracts specify which fixing they settle against, and a chart of one is not a chart of the other. Some currencies carry separate market codes or naming conventions precisely to keep the two apart, because conflating them produces the wrong number rather than an approximate one.