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US Dollar Funding and Emerging Market Economy Vulnerabilities

The report proposes a number of policy measures that seek to reduce Emerging Market Economy (EME) vulnerabilities stemming from external funding and non-bank financing, as well as to enhance crisis management tools. These include measures to: (i) limit the build-up of non-financial corporate foreign currency mismatches; (ii) further develop foreign currency hedging markets at the domestic and regional levels to manage currency risks; (iii) deepen local currency debt markets and foster a broader domestic investor base; and (iv) tackle non-bank financial institutions’ (NBFIs’) vulnerabilities, including those relating to liquidity mismatches in open-ended funds.

The report also encourages authorities to give further consideration to closing data gaps to facilitate risk monitoring and the timely adoption of policies to mitigate external EME vulnerabilities.

Categories: Recommended Readings
Author: FSB