TCX

Overview

The Currency Exchange Fund (TCX) is a development finance initiative and global currency hedging facility designed to reduce the currency risk associated with projects borrowing in hard currency, but earning local currency revenues. TCX facilitates indexed local currency lending, where borrowers receive hard currency but all of the loan repayments are indexed to the local currency. This makes debt repayments predictable and unimpacted by fluctuations in the exchange rate, enhancing debt sustainability. At the same time, TCX supports capital market development by selling some of the frontier currency exposure to private investors, thereby transferring risk from borrowers in developing markets to international investors from developed markets.

Key elements

TCX offers cross-currency swaps and forward contracts in more than 70 low- and middle income countries. As a development finance initiative, TCX pursues maximum development impact and prices hedging instruments on a risk-reflective basis. The combination of funding costs, credit margin and swap rates can at times lead to unaffordable financing costs in low income, high-risk countries. To ensure the affordability of indexed local currency financing, TCX has worked with the European Commission and other donors on an innovative blending approach to make currency hedging more accessible. Because TCX pools the risk of a wide variety of emerging and frontier market currencies, it can achieve diversification and scale that none of the development financiers can accomplish on their own.