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Matching Risks with Instruments in Development Banks

Author

Listed:
  • Stephany Griffith-Jones
  • Shari Spiegel
  • Jiajun Xu
  • Marco Carreras
  • Natalya Naqvi

Abstract

This paper explores how development banks should deploy appropriate financial instruments to encourage real economic risk-taking while minimizing financial engineering risks. We distinguish real economic risks from financial engineering or intermediary risks and argue that using complex financial instruments to leverage additional private financing may undermine policy steer and lead to too much risk being taken by development banks. We then explore comparative advantages of different financial instruments such as loans, guarantees, equity, and insurance in tackling risks in normal times. Then we synthesize common features of development banks’ responses to the COVID-19 crisis. Finally, we propose future research directions.

Suggested Citation

  • Stephany Griffith-Jones & Shari Spiegel & Jiajun Xu & Marco Carreras & Natalya Naqvi, 2022. "Matching Risks with Instruments in Development Banks," Review of Political Economy, Taylor & Francis Journals, vol. 34(2), pages 197-223, April.
    • Handle: RePEc:taf:revpoe:v:34:y:2022:i:2:p:197-223
    DOI: 10.1080/09538259.2021.1978229
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    Cited by:

    1. Schclarek Curutchet Alfredo & Jiajun Xu, 2023. "Local Currency Loans in the Global Development Finance Architecture," Asociación Argentina de Economía Política: Working Papers 4692, Asociación Argentina de Economía Política.
    2. Hu, Bo & Schclarek, Alfredo & Xu, Jiajun & Yan, Jianye, 2022. "Long-term finance provision: National development banks vs commercial banks," World Development, Elsevier, vol. 158(C).
    3. Schclarek, Alfredo & Xu, Jiajun, 2022. "Exchange rate and balance of payment crisis risks in the global development finance architecture," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).

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