Template-Type: ReDIF-Paper 1.0
Author-Name: Schclarek Curutchet Alfredo
Author-Name-First: Alfredo
Author-Name-Last: Schclarek Curutchet
Author-Name: Jiajun Xu
Author-Name-First: Xu
Author-Name-Last: Jiajun
Title: Local Currency Loans in the Global Development Finance Architecture
Abstract: We analyze how multilateral development banks (MDBs) can lend in local currency to investment projects that are “domestic-oriented” (DOIPs), i.e., which do not generate hard currency, without incurring in currency mismatches between their assets and liabilities, which would downgrade their credit ratings. Further, we compare two funding strategies for MDBs; one that involves buying local currency and one that involves issuing local currency bonds. The main policy conclusion is that there are tradeoffs between these two funding strategies and MDBs should consider the particular exchange rate risks and balance of payments crisis risks for the real investment projects that are financed and the host countries.
Length:  14 pages
Creation-Date:  2023-11
File-URL: https://aaep.org.ar/works/works2023/4692.pdf
File-Format: Application/pdf
Number: 4692
Classification-JEL: G01, E51
Handle: RePEc:aep:anales:4692