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Financial stability and local currency bond markets

  • Bank for International Settlements
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    Introduction Local currency bond markets can help financial stability by reducing currency mismatches and lengthening the duration of debt. Such markets also help economic efficiency by generating market-determined interest rates that reflect the opportunity costs of funds at different maturities. The absence of such markets can lead borrowers to take risky financing decisions that create balance sheet vulnerabilities. Such balance sheet weaknesses played a key role in virtually every major financial crisis affecting the emerging market economies (EMEs) since the early 1980s. This report demonstrates that several major EMEs have effectively addressed this problem during the past decade. Nevertheless, operational risks inevitably arise in a transitional period when nascent markets still lack those features that help the more mature markets to work well even in volatile conditions. This report therefore examines several important challenges in ensuring that comparatively new bond markets function in ways that contribute best to financial stability and economic progress.

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    This book is provided by Bank for International Settlements in its series CGFS Papers with number 28 and published in 2007.
    ISBN: 92-9131-731-4
    Handle: RePEc:bis:biscgf:28
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    1. Marcel Peter & Martín Grandes, 2005. "How Important is Sovereign Risk in Determining Corporate Default Premia? the Case of South Africa," IMF Working Papers 05/217, International Monetary Fund.
    2. Camilo E Tovar, 2005. "International government debt denominated in local currency: recent developments in Latin America," BIS Quarterly Review, Bank for International Settlements, December.
    3. Wolfgang Schulte & Roberto Violi, 2002. "Interactions between cash and derivatives bond markets: some evidence for the euro area," BIS Papers chapters, in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 222-267 Bank for International Settlements.
    4. Martinez, Lorenza & Werner, Alejandro, 2002. "The exchange rate regime and the currency composition of corporate debt: the Mexican experience," Journal of Development Economics, Elsevier, vol. 69(2), pages 315-334, December.
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    7. Kevin Cowan & Erwin Hansen & Luis Oscar Herrera, 2005. "Currency Mismatches, Balance Sheet Effects and Hedging in Chilean non-Financial Corporations," Working Papers Central Bank of Chile 346, Central Bank of Chile.
    8. Mehl, Arnaud & Reynaud, Julien, 2005. "The determinants of ‘domestic’ original sin in emerging market economies," Working Paper Series 0560, European Central Bank.
    9. Robert T. Price, 1997. "The Rationale and Design of Inflation-Indexed Bonds," IMF Working Papers 97/12, International Monetary Fund.
    10. M S Mohanty & Philip Turner, 2006. "Foreign exchange reserve accumulation in emerging markets: what are the domestic implications?," BIS Quarterly Review, Bank for International Settlements, September.
    11. Paloma Acevedo & Enrique Alberola & Carmen Broto, 2007. "Local debt expansion... vulnerability reduction? An assessment for six crises-prone countries," Banco de Espa�a Working Papers 0733, Banco de Espa�a.
    12. World Bank & International Monetory Fund, 2001. "Developing Government Bond Markets : A Handbook," World Bank Publications, The World Bank, number 13865.
    13. Martín Redrado & Jorge Carrera & Diego Bastourre & Javier Ibarlucia, 2006. "The Economic Policy of Foreign Reserve Accumulation: New International Evidence," BCRA Working Paper Series 200614, Central Bank of Argentina, Economic Research Department.
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    15. M S Mohanty, 2002. "Improving liquidity in government bond markets: what can be done?," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 49-80 Bank for International Settlements.
    16. Michael D. Bordo & Christopher Meissner & Angela Redish, 2003. "How "Original Sin" was Overcome: The Evolution of External Debt Denominated in Domestic Currencies in the United States and the British Dominions," NBER Working Papers 9841, National Bureau of Economic Research, Inc.
    17. Luzi Hail & Christian Leuz, 2006. "International Differences in the Cost of Equity Capital: Do Legal Institutions and Securities Regulation Matter?," Journal of Accounting Research, Wiley Blackwell, vol. 44(3), pages 485-531, 06.
    18. Morris Goldstein & Philip Turner, 2004. "Controlling Currency Mismatches in Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 373, March.
    19. Serge Jeanneau & Camilo E Tovar, 2006. "Domestic bond markets in Latin America: achievements and challenges," BIS Quarterly Review, Bank for International Settlements, June.
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