Originally published: September 4, 2007
Source: FMO, Netherlands
A global partnership of financiers, led by Dutch development bank FMO, has created a large and innovative fund to develop local currency products in developing countries worldwide. The Currency Exchange Fund N.V. (TCX) was launched on September 5, 2007 in Amsterdam, Netherlands.
TCX will start up with a transaction capacity of US$1.2Bln for long-term local currency financing by its investors. The investors joining TCX in the first close will commit a total of approximately US$300Mln in equity. The investors will pay special attention to the Sub-Sahara Africa region, and to the microfinance, housing and infrastructure sectors. The initiative is expected to drastically reduce default probability, improve business sustainability and contribute to the development of local capital markets.
TCX research finds that true global risk diversification works much better than regional diversification, especially under very stressed market circumstances. By pooling local currency risk, TCX is the first to introduce the concept of a well diversified portfolio of developing country currencies. Local currency hedging mechanisms such as TCX have the potential to create very positive economic impact in developing countries.
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