US Dollar Funding and Emerging Market Economy Vulnerabilities

The report proposes a number of policy measures that seek to reduce Emerging Market Economy (EME) vulnerabilities stemming from external funding and non-bank financing, as well as to enhance crisis management tools. These include measures to: (i) limit the build-up of non-financial corporate foreign currency mismatches; (ii) further develop foreign currency hedging markets at the domestic and regional levels to manage currency risks; (iii) deepen local currency debt markets and foster a broader domestic investor base; and (iv) tackle non-bank financial institutions’ (NBFIs’) vulnerabilities, including those relating to liquidity mismatches in open-ended funds.

The report also encourages authorities to give further consideration to closing data gaps to facilitate risk monitoring and the timely adoption of policies to mitigate external EME vulnerabilities.