Aftermath of the global financial crisis marked a rise in capital flows from developed to developing world. These benign liquidity conditions made borrowing in foreign currency attractive and resulted in an accumulation of significant external debt in many emerging economies since 2010. This workshop will address the foreign currency debt problem of the non-financial corporate sector in emerging economies to account for spillovers to financial stability. The sessions during the workshop will focus on the current outlook regarding the FX denominated liabilities of firms and the risks they impose on the financial stability in these economies. Country specific policies that have been implemented so far to mitigate these risks as well as other policy suggestions will also be discussed as an integral part of the topic. During the first sessions for each topic, an experienced scholar will tackle the issue from a theoretical and empirical perspective in a seminar format. In the following sessions, officials/experts from several central banks will present their country’s experiences and relevant policy applications in their countries.
Theoretical and empirical discussion on the causes of dollarization of non-financial corporate sector liabilities
• Original sin, negative interest rates and macroeconomic factors
• Impact of cost-saving and hedging motives
• Capital flows, securitization and supply of foreign currency creditConsequences of liability dollarization and possible threats to financial stability
• Effectiveness of monetary policy transmission mechanism in dollarized economies
• Contribution of foreign currency borrowing on systemic risk
• Identifying foreign currency risk in scenario analysis and stress-testsAppropriate policy measures in an economy with high foreign currency debt in the private business sector
• Asset-liability mismatch disclosure requirements
• Multinational companies and cross border and off-shore lending
• Concentration of foreign currency exposures among sectors
Target Audience: The workshop is designed for officials and economists from central banks and related policy institutions who are interested in monetary policy making in an economy with high FX debt and its financial stability implications for emerging economies. Participants will be expected to take part in the discussions and share their country experiences.