Local Currency Loans in the Global Development Finance Architecture

Alfredo Schclarek () and Xu Jiajun

No 4692, Asociación Argentina de Economía Política: Working Papers from Asociación Argentina de Economía Política

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.

JEL-codes: E51 G01 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2023-11
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-ifn and nep-ppm
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Persistent link: https://EconPapers.repec.org/RePEc:aep:anales:4692

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