Local currency fund TCX

active

The Currency Exchange Fund N.V. (TCX), Netherlands, has been an operating provider of currency hedging since 2008 and is financed by German Financial Cooperation with several other development banks, such as FMO and also IFC, EIB and EBRD. The overarching development policy objective of the measure is to improve borrowers' access to local currency loans and to contribute to the development of local currency and capital markets. Borrowers in emerging countries with investments in local currency often have to choose between two equally risky and unattractive alternatives for long-term financing. Either they finance long-term assets in local currency with short-term liabilities in local currency, which thus entails a risk due to timing mismatch. Or they finance these assets with long-term, hard currency liabilities from international investors, thus running the risk of currency imbalance. Both alternatives entail a risk which, in the worst case, leads to a potential threat to continuity and growth and to the inefficient use of capital. In order to help microfinance institutions, banks and public infrastructure that provide local financing in developing countries to reduce these undesirable market risks, TCX offers local currency hedging products in countries or currencies that are on the list of recipients of official development assistance of the Development Assistance Committee of the Organisation for Economic Co-operation and Development (OECD; or its Development Assistance Committee (DAC). TCX thus enables financing that is desired in terms of development policy and the business models underlying it. TCX is also involved in financing studies and projects with the same objective through a specially set up technical assistance fund (JoDEA).