The Currency Exchange Fund (TCX), Loan 2021-2045

Development banks and other international investors often provide long-term finance to developing countries in hard currency, such as US-Dollar. The local borrower, who earns local currency, has limited scope to absorb a currency mismatch between income and liabilities, and thus should borrow in local currency. The international investor, however, can usually only provide local currency if it can itself hedge (take away the currency risk). Hence, TCX provides a solution and shifts the currency risk to those that can bear it, namely TCX.

In many instances, a mismatch exists between the currency of an MSME's payment obligations and the currency in which the MSME generates its income. A real depreciation of the respective local currency vis-#-vis the foreign currency will cause difficult or even distress financial situations for those MSMEs. Where hedging is not available through commercial providers, TCX steps in and offers a solution. The overall goal is to offer local currency solutions, thereby taking away the currency risk from those MSMEs that are not well placed to absorb currency fluctuations.

De-risked development finance and increased transparency: this is measured in terms of business volumes (hedges) in geographies, currencies and maturities where there is no private market for hedging. In addition, the underlying investment (for example an MSME) is de-risked and thus creates more of the envisaged development impact, such as created jobs or CO2 emissions avoided-

Market development through increased price transparency and reduced perceived risks: this outcome is measured by means of how much of TCX's currency risk can be sold to the market (investors) and how many local currency bonds are hedged with TCX-

Increased awareness and understanding of currency risk in development finance through thought leadership: this is measured by how much TCX is an advocate for local currency in the various markets as well as to what extent is TCX a knowledge leader in research.

Risultati principali attesi:  

n/a

Risultati fasi precedenti:  

For the calendar year 2020, TCX:

- de-risked USD 984.7 million of external lending-

- contributed to market creation by selling USD 469.8m of frontier currency risk to international investors-

As a consequence of shielding development finance loans from local currency risks, clients of TCX in 2020:

- created almost 30'000 jobs, of which almost 13'000 female jobs-

- avoided 21 kilotonnes of CO2 emissions.