Investors support TCX to protect the poorest against FX risks amidst COVID-19.
The Currency Exchange Fund (TCX) is thrilled to announce that the European Commission (EC), supported by KfW, the International Finance Corporation (IFC) on behalf of the International Development Association (IDA) and Proparco invested over USD 200 million in the Fund.
The investments, combined with the 2019 capital increase, raise TCX's risk bearing capacity by 65% to a total capital base of USD 1.25 billion. This allows the fund to support USD 30 billion in local currency investments in frontier countries during the tenor of the EC investment. This aggressive growth reflects the increased demand for local currency from households, enterprises and institutions in frontier markets. It also shows the dedication of development finance institutions to protect their borrowers from foreign exchange risk that comes with cross-border lending. During the COVID crises many frontier market currencies were hit, with devastating results for hard currency borrowers. The investments come with a focus on borrowers in IDA countries, especially Sub-Sharan Africa, and in the European Neighborhood countries.
TCX has provided currency risk protection throughout the crisis without disruption and the additional capital further strengthens the Fund's ability to provide protection in times of severe financial instability.
Ruurd Brouwer, CEO of TCX states:
"The investment is a timely response from our investors to counteract the detrimental effects of the pandemic. Especially the poorest countries that lack reserves and adequate health care systems are vulnerable to this external shock. Currency depreciations put households, enterprises and local institutions that have borrowed in foreign currency at risk of default. Allowing them to borrow in their local currency instead increases financial resilience and creates the stability needed to reduce the negative impact of this and future crises."
TCX is a global development finance initiative which offers long-term currency protection in 100+ financial markets where such products are not available or poorly accessible. The Fund started operations in 2007 and has since then provided hedging instruments with a total volume of USD 8.5 billion, spread over 3500+ transactions. Today the fund has an exposure of over USD 5 billion in 60 frontier and emerging market currencies. By selling parts of this exposure to private investors it creates markets and gives these countries access to the international capital markets.