July 31, 2021
Economy

Why a global fund is needed to cut currency risk for developing nations

The writer is chief executive of the Nordic Institute for Finance, Technology and Sustainability

Currency risk is the Achilles heel of developing economies that borrow to make investments to increase productivity, reduce emissions and meet sustainable development goals. 

About 90 per cent of cross-border debt for low and lower-middle income countries, nearly $2tn, is denominated in hard currencies, mostly dollars, much of it from development banks and other official lenders.

But this exposes vulnerable populations to sometimes wild fluctuations in exchange rates that increase economic fragility and often trigger a debt crisis. Nine currencies of developing economies fell by more than a quarter and a further 21 by more than a tenth in 2020 as Covid-19 hit.

This is a failure of both markets and policy that forces currency risk on those least equipped to bear it. Only 20…

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