Sovereign Debt with Jill Dauchy
Episode 31: Ruurd Brouwer and Harald Hirschhofer on currency risk markets
Feb 5, 2024
Ruurd Brouwer, TCX's CEO, and Harald Hirschhofer, Senior Advisor, discuss borrowing in foreign currencies, challenges in currency risk management for low-income countries, the impact of commodity income on currency risk, TCX's role in assisting debt management offices, reducing currency exposure, and policy reforms to improve currency risk markets.
50:34
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Quick takeaways
- TCX aims to address currency risk in emerging markets by providing hedging instruments and standardized agreements.
- Collaboration among stakeholders and policy reforms are crucial for effective currency risk management and debt predictability in low-income countries.
Deep dives
Currency risk and its impact on debt sustainability
Currency risk is a significant issue in international markets, especially for borrowers in emerging and frontier markets. Most development finance institutions operate with hard currency balance sheets while their clients earn local currency. This creates instability and unpredictability in debt service payments, hindering the purpose of development finance. TCX, a company supported by various governments and development finance institutions, aims to address this gap by providing hedging instruments for borrowers in emerging markets. By swapping currencies and offering standardized agreements, TCX allows lenders to offload currency risk while ensuring stability for borrowers.
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