Michael Pomerleano, a staff member of the Committee on the Global Financial System (CGFS) and secretary to the CGFS Working Group on Financial Stability and Local Currency Bond Markets that produced the Report “Financial Stability and Local Currency Bond Markets”, provided an illuminating presentation to a roundtable of participants in NYC on October 1, 2007. CGFS is a central bank forum established by the Governors of the G10 central banks to monitor and examine broad issues relating to financial markets and financial stability.
The Report highlights how the rapid development of local currency bond markets over the past five years has strengthened the financial systems of many Emerging Market economies. Currency mismatches, the cause of so many earlier crises, have been virtually eliminated or substantially reduced. Foreign financial institutions are channeling increasing volumes of funds into these markets. Many countries have, therefore, overcome “original sin” - the inability to repay indebtedness denominated in foreign currencies. They have succeeded in attracting foreign investors to their local currency bond markets by adopting better macroeconomic policies, more prudent debt management strategies and significant financial sector reform.
Also discussed was the relationship between NDF’s and onshore investments and their affect on the local economy, as well as the possible contagion effect of investments in local currency bonds.
EMTA Members may Click Here for the full text of the Report.
EMTA Members may Click Here for the PowerPoint Presentation.