On 29 November 2018, TCX, in cooperation with the German Federal Ministry for Economic Cooperation and Development (BMZ) and the Blended Finance Task Force, hosted the conference ‘Local Currency, the Sustainable Development Goals, and Catalyzing the Private Sector’. The conference took place in Berlin, Germany.

To finance the Sustainable Development Goals (SDGs), joint action is required from the public and private sectors and the development finance community. The current practice is to deliver development finance in hard currency such as the US dollar. However, most households, enterprises and institutions in frontier markets receive their income in local currency. This creates a mismatch. When a currency depreciates, the local borrowers face an increased debt servicing burden, pushing them into crisis management and preventing them from growing their business. Too often, currency risk is offloaded onto those that can bear it the least.

At a micro level, currency risk causes hardship and uncertainty for households and enterprises. At a macro level, currency depreciation leads to instability in entire economic sectors, most obviously in the financial sector, but also in the energy and infrastructure sectors. This macroeconomic instability makes long term structural planning difficult, hindering equitable economic growth.

Ironically, the large investment inflows that are needed to reach the SDGs will cause large-scale financial instability if they take place in hard currency and expose borrowers to currency risk. The more advanced countries are developing their local capital markets to cope with this challenge; the more frontier markets, in Africa especially, need external solutions, knowledge and expertise to address the issues. In this sense, currency crises have something in common with other crises: the most vulnerable are hit the hardest.

The conference gave insights into the local currency challenge to realizing the SDGs, focusing on the most frontier markets. For an overview of the program, please click here.