Lorenzo Forni, Philip Turner, 15 January 2021

Dollar bond issuance by non-US companies has dominated foreign borrowing since the global crisis. In many emerging markets, higher leverage and currency mismatches have increased the risk of corporate insolvencies and created new threats to the balance sheets of local banks. This column documents the financial risks created by these recent trends and outlines the necessary implications for regulatory policy. In addition to regulation, financial fragilities have added to demands for fiscal stimulus and led some emerging market central banks to ease monetary policy by buying government bonds, creating new links with fiscal policy. 

John D. Burger, Francis Warnock, Veronica Cacdac Warnock, 19 September 2018

A large share of Turkey’s bonds are denominated in foreign currencies, and the Turkish lira has depreciated. This recalls the currency mismatches that contributed to many crises in the 1990s. The column argues that many emerging economies like Turkey's are better able to avoid these crises thanks to improved policies, such as inflation targeting, that have helped foster local currency bond markets. Emerging markets policymakers must not backslide on this progress if they want to maintain financial stability.

David Amiel, Paul-Adrien Hyppolite, 15 March 2015

As the Eurozone crisis lingers on, euro exit is now being debated in ‘core’ as well as ‘periphery’ countries. This column examines the potential costs of euro exit, using France as an example. The authors estimate that 30% of private marketable debt would be redenominated, but since only 36% of revenues would be redenominated, the aggregate currency mismatch is relatively modest. However, the immediate financial cost of exiting the euro would nevertheless be substantial if public authorities were to bail out systemic and highly exposed companies.


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