LONDON — In his first major speech as head of the U.K. Department for International Development, Rory Stewart announced £31 million ($40 million) for a facility that supports development finance by de-risking lending to low-income countries in local currencies.
The Currency Exchange Fund, or TCX, was founded in 2007 by the Dutch government to mitigate foreign exchange risks — a major cause of financial instability for lenders and borrowers in low-income countries.
Because currencies in emerging markets tend to be highly volatile, international lenders prefer to lend in a more stable currency such as U.S. dollars — but this leaves borrowers earning revenue in the local currency extremely vulnerable to changes in the exchange rate. TCX aims to change that.