Local Currency Research Articles

Carry Trades and FX Risk Buffers: Foreign Currency Debt of Emerging Market Firms

Abstract The surge in foreign currency (FC) corporate debt in emerging economies has sparked concerns about macroeconomic stability, heightened by speculation about non-financial firms engaging in carry trades. Using firm-level data on the currency denomination of both assets and liabilities, we find evidence of firms' carry trades: firms save in local currency liquid assets and earn higher interest income after issuing short-term FC debt. They also set aside FC liquid assets as FX risk buffers. A large degree of heterogeneity in incentives is observed. Notably, listed firms participate more in carry trades and allocate less FX risk buffers than non-listed firms.

Euroization of the Economy and the Negative Impact of the Strengthening of the Local Currency on Exports and Other Economic Indicators in Albania

The Albanian economy is a small and open economy. As such, it is quickly influenced by the turbulence of the global, European, and regional economies. Economic theory emphasizes the link between the exchange rate, exports, the consumer price index, and the balance of foreign trade. The purpose of this article is to study the impact of the exchange rate, primarily at the export level, while also considering other economic factors within the framework of the overvaluation of the Albanian currency (ALL) against the currencies of partner countries, mainly the Euro. The overvaluation of the Albanian currency has led to discouraging exports and increasing imports, influencing the rise in the Consumer Price Index, meaning higher consumer prices. This is due to the fact that the Albanian economy is mainly dependent on imports. The empirical and econometric models used, along with the factors included in this study according to the hypotheses raised, are related to assessing the mutual relationships of the exchange rate with other economic factors for the time period 2018-2023.The results imply and depict the integrated relationship between the exchange rate and exports and other economic factors, as well as supporting the fact that the real exchange rate (RER) has deviated from its equilibrium level. The conclusions in this study confirm that an overvalued domestic currency has increased costs for operations conducted in the local currency ALL, reducing income for operations conducted in Euro and other currencies. This overvaluation of the domestic currency has resulted in losses for exporting companies, impacting the trade balance. Based on the findings in this study, it is crucial for financial institutions and policymakers to be consistent in monitoring the exchange rate, especially EUR/ALL, to improve the long-term relationships between the exchange rate, exports, and other economic factors.

Financial and market risks of bitcoin adoption as legal tender: evidence from El Salvador

Bitcoin adoption as a legal tender threatens a financial crisis because of the lack of regulatory frameworks and systems for exchanging Bitcoin into local currencies. This study analyzes monthly data from 2010 to 2022 using a structural vector autoregressive model, estimating Bitcoin’s pass-through into remittance, money multiplier, the US Dollar index, and gold price. The results show that Bitcoin prices decrease the money multiplier and gold prices in both the short and long run, while remittances moderately increase in the long run. The implication of these results suggests the potential for international business opportunities to stimulate the credit, savings, and investment monetary policy channel. The results are robust to alternative SVAR identification strategies.

Parallel Currencies under Free Floating Exchange Rates: A Model Setting Out the Conditions for Stable Currency Competition

We use a theoretical model to set up the conditions for a country to attain monetary stability by allowing for two freely tradable currencies to circulate in parallel. For this parallel system to function properly, confidence in the good behavior of the monetary authorities in charge of the two currencies is key. Our model shows how a floating exchange rate between the two can keep the issuers of the local currency in check. The results from our model show the conditions under which a parallel currency system disciplines the issuers of the currencies and thus maintains their purchasing power. In non-volatile economies, it also discourages governments (or private issuers) from inflating one of the currencies as a means to raise seigniorage, as this policy results in the displacement of the currency from the market. When foreign payments shortfall—such as in Greece and Cyprus during the ‘euro crisis’ in the mid-2010s, or intractable hyperinflation—leave the country without a medium of exchange, our model shows how currency choice can restore monetary circulation and offer a path to achieving and maintaining monetary stability.

Heterogeneity in exchange rate pass-through to import prices in Thailand: Evidence from micro data

We use transaction-level customs data and show that there is significant the Thai border. Our findings uncover several structural determinants of ERPT, where we document lower ERPT for (i) prices of differentiated goods, (ii) firms with a higher degree of market power, (iii) prices of goods controlled by the government and (iv) goods invoiced in the local currency. We also find that for the large majority of Thai imports that are invoiced in the US dollar under the dominant currency pricing (DCP) paradigm, price responses to the US dollar are much stronger than those associated with the bilateral exchange rate vis-à-vis the exporters' currency, but only in the short run. Finally, by investigating state-dependent properties of ERPT, we find that small exchange rate changes are associated with higher ERPT, while the degree of pass-through is stronger during episodes of depreciations rather than appreciations, particularly for goods that practice DCP.

An Empirical Analysis of Public Debt Sustainability in Kenya

The study provides a focused analysis of Kenya’s determinants of debt sustainability owing to its consistent budget deficits and higher debt servicing costs. Unlike broader studies, this research focuses on Kenya's unique economic conditions and talks about the consequences of unchecked debt servicing payment failures in Kenya that could undo macroeconomic progress if unchecked. The study deploys a single equitation regression analysis followed by a series of robustness checks and a generalized method of moments (GMM) technique to analyze the link for Kenya, 1990-2023. The regression results show that debt in Kenya is not sustainable, with factors such as an increase in debt stock, high-interest rate costs, increase in budget deficits, inflation rate increase and high depreciation of the local currencies ultimately wiping out the repayment potential of Kenya. However, the results show that increased export revenue earnings and faster economic growth can improve budget resources for debt servicing. Our findings suggest that policymakers in Kenya should focus on fiscal consolidation by reducing non-interest expenditures and enhancing revenue collections.

A Statutory Analysis of the Role of the Courts in Protecting Financial Consumers' Rights in the Zimbabwean Banking Sector: The Penelope Case in Context

Abstract The Zimbabwean banking sector has experienced several tumultuous challenges since 2000. This is owing chiefly to the political and economic challenges the country has experienced. Poorly conceived and ill-timed policies have also wreaked havoc in the Zimbabwean banking sector. Financial consumers have sometimes lost their savings to hyper-inflation or overnight policy changes in Zimbabwe. The change in currencies is a good example of how financial consumers have seen their deposits and savings at banks and other related financial institutions eroded to nothing. In 2018, the Reserve Bank of Zimbabwe (RBZ) issued a directive for all banks to convert all deposits made prior to October 2018 from the United States (US) dollar denomination to the Zimbabwean dollar (bond notes and coins). This was done on an exchange rate of one US dollar as to one Zimbabwean dollar, yet in reality, the local currency had been devalued. The RBZ directive left individuals and corporates reeling from exchange losses. The directive was akin to a heist and many people lost trust and confidence in the Zimbabwean banking sector. While many financial consumers suffered in silence, some decided to take their banks to court, demanding a reimbursement of their deposits in the currency in which they deposited or alternatively, the equivalent of the original deposit using the correct exchange rate. This article examines the role of the courts in upholding the rights of financial consumers in the Zimbabwean banking sector in the light of the Penelope case. It also discusses how the Zimbabwean courts could assist in preserving the sanctity of the bank-client relationship among banks and financial customers. In addition, the article explores the role of the courts in challenging unjust laws that affect financial consumers' investments in banks. The strengths and weaknesses of the Zimbabwean banking regulatory framework are further discussed to assess if it is robust enough to protect financial consumers. The article recommends that the courts should objectively set aside unjust laws in the interest of justice to enable banks and other financial institutions to honour their contractual obligations. Policymakers should not adopt poor policies that infringe upon financial consumers' rights. Keywords: Banking sector; consumer protection; financial consumer; deposits; exchange rate; courts.

From serials crisis to dollar crisis: The compelling evidence against APC‐based open access in sub‐Saharan Africa countries

Key points The article processing charges (APC)‐based model of open access has constituted a major obstacle to achieving open access in developing countries. High exchange rates of local currencies to the dollar make sustaining the APC open access model impractical. Other approaches should be used to achieve equitable and inclusive open access.

The political economy of currency unions

How can monetary and fiscal policy sustain a currency union when member states have an exit option? This paper derives an interest rate rule that features state-dependent country weights with which the central bank can prevent a break-up. A simulation reveals that this policy rule lacks firepower and can only extend the lifetime of the union for a while. While monetary policy is more potent in unions with more member states or setups with local currency pricing, it is still true that even a simple fiscal union with lump-sum transfers is better suited to prevent a break-up. Environments with lower risk sharing, the ZLB or wage rigidity make monetary policy even less effective.

Between Exchange Rate Returns and Crude Oil Returns in Oil-Importing Countries

Fluctuations in the financial markets stem from the reactions of investors to both market activities and more wide-ranging macroeconomic indices. This research examines the interconnectivity between returns on exchange rates and crude oil prices for ten oil-importing countries. Quarterly data spanning the period from 2000Q1 to 2022Q4 was used in the estimation. Returns had to be calculated from raw data, which were exchange rates and crude oil prices. The research methodologies include quantile regression and VAR-GARCH estimations. The study revealed a long-term association between crude oil market returns and foreign exchange markets, with currency fluctuations negatively impacting crude oil returns. The spill-over effect from the currency market to the oil market is weaker than the transmission effect from the oil market to the currency market of oil-importing countries. In particular, it was empirically established that shocks from past volatility in the currency markets of countries that import oil had commensurately lower volatility in the oil market by 6 percent. Whereas, the spillover from the crude oil market to the currency market depicts that increased turbulence on the crude oil market in the current period stimulated 55.66 percent amplified volatility in the currency market for oil-importing nations. Oil returns had a volatility persistence value of 0.1255, ratifying the weak volatility persistence of oil returns. The size of the volatility persistence of exchange rate returns is 0.997, an indication of high volatility persistence for currency returns. The study found the absence of leverage effects for currency values given a positive coefficient with a magnitude of 0.8529. In other words, bad news does not cause higher turbulence in exchange rate returns than good news will. For crude oil returns, the size of the leverage effects term is -0.0529, which is negative and significant (p<.05), implying that bad news in oil-importing economies has asymmetric impacts on the volatility of returns on crude oil prices. In effect, the oil price returns react more strongly to bad news than these returns react to good news. The findings of the study underscore the intricate relationships between local currencies and energy prices within the context of a global financial market, highlighting the significance of understanding these dynamics for effective decision-making and risk management in an increasingly interconnected world. It was recommended, among others, that international collaboration amongst countries is crucial given the global nature of energy markets.

Measuring and Analysis the Relationship between the Internal Public Debt and the Exchange Rate in the Iraqi Economy for The Period 2004 – 2022

The scholastic view of public religion differed, and this difference was on two extremes. Alleconomic schools agreed that public debt is a monetary liquidity that was unjustly deductedfrom the income and output cycle as a result of the imbalance in the economic balance and thedeparture from the conditions of balance between aggregate demand and aggregate supply.Debt is a waste of financial resources allocated to productive accumulation. Except for theKeynesian school, which considers public debt to be an addition to aggregate demand after thedecline in the role of the private sector in investment as a result of pessimistic expectations thatwarn of signs of economic contraction. Public debt is linked to the exchange rate through theinterest rate channel, so that public debt causes competition for financial resources. Thiscompetition results in an increase in the local interest rate, which results in an increase indemand for the local currency with the aim of increasing investment, and the demand for thelocal currency raises the price of the local currency. Which means that there is an indirectrelationship between public debt and the exchange rate, but this relationship may create damagein the balance of payments in the near future. They assumed the existence of a long-term causalrelationship between internal public debt and the exchange rate. The main goal of this researchis to verify the economic relationship between the investigated variables, using thecointegration model and the error term correction vector model to prove the researchhypothesis. And the Kranger model of causality between the variables. The research reachedthe most prominent conclusion, which is that individual expectations for the internal publicdebt after each annual deficit in the state’s general budget cause a decrease in the value of thelocal currency due to the increase in demand for the dollar and the decrease in demand for thedinar, which means that there is causality in one direction. From internal public debt to theexchange rate, this is what was proven by the results of Kranger’s causality test.

Rapid credit expansion and firm behavior: A case study from Türkiye

This study examines the impact of a sudden and remarkable credit expansion experienced in Türkiye during the first half of 2022 on firm behavior by utilizing a novel dataset containing the universe of all incorporated firms in Türkiye. The results of the combination of coarsened exact matching and difference-in-differences methodology show that, amid the credit expansion coupled with the deterioration in expectations of inflation and depreciation in local currency, the firms with higher credit usage tended to engage in alternative channels rather than undertaking real economic activities in short term, such as pulling-forward imports and input demand and taking position against local currency to gain financial profit more than those with less credit usage during the first half of 2022. While SMEs with higher credit usage increased their imports, domestic input purchases, foreign currency purchases, and foreign currency-denominated debt settlement before maturity, large firms increased their foreign currency purchases relative to their counterparts with less credit usage.

Cost analysis of establishing and operating the first human milk bank at Da Nang Hospital for Women and Children in Vietnam: an activity-based costing ingredients study

BackgroundBreastfeeding is the biological norm for feeding infants and young children. When mothers’ breastmilk is unavailable, donor human milk (DHM) from a human milk bank (HMB) becomes the next option for small vulnerable newborns. A comprehensive cost analysis is essential for understanding the investments needed to establish, operate, and scale up HMBs. This study aims to estimate and analyze such costs at the first facility established in Vietnam.MethodsAn activity-based costing ingredients (ABC-I) approach was employed, with the cost perspective from service provision agencies (specifically, the project conducted at Da Nang Hospital for Women and Children and Development Partners). Estimated financial costs, based on actual expenditures, were measured in 2023 local currency and then converted to 2023 US dollars (USD). We examined three scenarios: 1) direct start-up costs + indirect start-up costs + implementation costs, 2) direct start-up costs + implementation costs, and 3) capital costs + implementation costs over the 6.5 years of operation.ResultsThe total start-up cost was USD 616,263, with total expenditure on direct activities at USD 228,131 and indirect activities at USD 388,132. Investment in equipment accounted for the largest proportion (USD 84,213). The monthly costs of Da Nang HMB were USD 25,217, 14,565, and 9,326, corresponding to scenarios 1, 2, and 3, respectively. Over HMB's 6.5 years of operation, on average, the unit costs were USD 166, USD 96, and USD 62 for DHM received and USD 201, USD 116, and USD 74 for pasteurized DHM meeting specified criteria in the corresponding scenarios. Unit costs were highest in the initial six months, decreased, and reached their lowest levels after a year. Then, the unit costs experienced an increase in late 2020 and early 2021.ConclusionAlthough the unit cost of DHM in Da Nang HMB is comparable to that in certain neighboring countries, intentional measures to reduce disposal rates, improve HMB efficiency, motivate more community-based donors, and establish an HMB service network should be implemented to lower costs.

Impact of Range Bar and Ergodic Process on Early Price Trend Detection Using Evidence From USD/CNY Currency

In this paper, range bars and the ergodic theory are combined to investigate early price movements for the USD/CNY currency pair in China from 2015 till 2019. The main findings suggested that early price trend detection may be accomplished within two standard deviations of the mean. During the duration of trading that was restricted to a narrow range, the sample revealed that at least 68 percent of the frequency mean result indicated that range bars solved price trend creation. This paper is subjected to additional analysis in order to acquire a correlation coefficient sample of at least 0.8. This sample revealed that ergodic theory prevented overpriced hedge trends. The goal of this paper is to improve the detection of price trends at an earlier stage than the methodology of trend tracking. Because of this, the authorities need to seriously consider putting early price trend detection models into place in order to boost the liquidity of the local currency.

Exploring the Impact of Remittance and Economic Growth on Inflation

This study investigates the influence of remittance income and economic growth on the inflation rate in South Asian Association for Regional Corporation (SAARC) countries. Remittance inflows have a double effect on the economy’s inflation rate: firstly, it increases consumer spending capacity, driving up demand for goods and services, which can lead to higher prices; secondly the influx of foreign currency can cause local currency appreciation, raising import costs and contributing to inflation. While previous studies have focused primarily on how inflation hinders economic growth, this study seeks to understand how economic growth causes inflation from the other side. Economic growth boosts consumer and business spending, increasing demand for goods and services, which can increase prices. Furthermore, higher demand for resources and labor can raise production costs, further contributing to inflation. The correlation between remittance income and inflation has been extensively documented, but the impact of economic growth on inflation remains to be determined. The study is based on descriptive and exploratory research design and driven by a positivist research philosophy. The present study is based on secondary data collected from World Bank reports and the countries’ economic surveys. This study uses an unbalanced panel dataset of 272 data points from eight member countries of SAARC. Basic econometric techniques such as covariance analysis, panel unit root testing, panel autoregressive distributed lag model, and scaled coefficient analysis are employed. The remittance income is only statistically significant at the 10 percent significance level. A one percent increase in remittance income leads to a 0.284 percent increase in inflation over the long run. The growth rate of gross domestic product plays a crucial role in setting inflation. One percent rise in gross domestic product growth leads to a 0.3405 percent increase in inflation in the long term. The error correction term exhibits a negative and statistically significant relationship. The coefficient size suggested that around 65.14 percent of the disequilibrium was rectified in each cycle. The current year’s lagged gross domestic product growth negatively and statistically significantly impacts economic growth. One percent rise in gross domestic product growth led to 0.3308 percent fall in inflation in the short term across SAARC countries. The results indicate that remittance income has a minimal long-term effect on inflation in SAARC nations, whereas gross domestic product growth substantially impacts inflation. Policymakers should prioritize promoting sustainable economic growth to mitigate inflationary pressures effectively.

Maqāṣid Sharīah Paradigm in Wealth Preservation and Regional Stability Through Local Currency Protection within ASEAN

The use of Local Currency Settlement (LCS) which was decided at the conclusion of the 42nd Asean Summit in Labuan Bajo is a policy that will facilitate trade transactions between Asean countries and can increase the use of each country's local currency and reduce dependence on the US dollar. The purpose of this study is to find out and describe why Indonesia encourages ASEAN countries to use the LCS in the region and to analyze the results of the 42nd Asean Summit in the perspective of maqāṣid sharīah through the concept of hifẓ al-māl (wealth preservation). The design used in this study is a literature review and field research. A literature review study is a method applied to collect data or sources related to a particular topic which can be obtained from various sources such as journals, books, the internet and other literature. While field research by adding interviews with Islamic economists or academics or religious and government leaders. The results of this study indicate that Local Currency Settlement (LCS) agreements can realize economic independence and stability in the ASEAN region through the ease and efficiency of settlement of transactions carried out bilaterally and regionally by using each country's local currency and increasing trade, investment, and other transactions between Asean Countries. The agreement in the LCS policy is in line with the basic principles of maqāṣid sharīah through hifẓ al-māl which also implements the qiyām or qawām system (balance within self, family and society) in protecting wealth so as to achieve independence and economic stability in a broader scope both nation, state, region and globally.

THE IMPACT OF EXCHANGE RATE VOLATILITY AND INFLATION ON THE NIGERIAN ECONOMY

In African countries, exchange rate volatility, inflation, and economic growth relationships remain debatable, especially in Nigeria, because of the historical homogeneity of the monetary macroeconomic variables among the member countries. Therefore, the purpose of this paper is to examine the relationship among exchange rate volatility, inflation, and economic growth in Nigeria from 1985 to 2022. The autoregressive distributed lag (ARDL) estimation technique of analysis was employed in achieving the objective of the study. We employed GARCH (1, 1) to obtain the volatility of the exchange rate data. Results indicated that exchange rate volatility and inflation adversely influenced the growth of the Nigerian economy. Further analysis reveals a negative impact when the interaction of exchange rate volatility and inflation is tested on growth. Also, the result revealed that gross capital formation promotes the growth of the Nigerian economy. This result confirms the positive evidence ascertained in the literature on the investment growth nexus. It is therefore recommended that policies that focus on improving local currency should be the top priority of the government. Also, policies that would reduce overdependence on foreign raw materials for production should be encouraged.

Symmetric and Asymmetric Response of the Renewable Energy Market to Indonesian Economic Trends

This study digs into the complex interplay between renewable energy market development and Indonesian economic trends. Our rigorous study aims to investigate the impact of crucial economic indicators, including gross domestic product (GDP), exchange rates, inflation, real interest rates, net inflow of foreign direct investment (FDI), and urbanisation, on the renewable energy landscape in Indonesia between 1973 and 2022. This study provides a novel insight by investigating both symmetric and asymmetric impacts in the context of Indonesia. While previous studies have limited scope with linear relationships, this study fills a gap by capturing the dynamic interplay between renewables and economic indicators. By employing a robust econometric model, we reveal interesting patterns highlighting the multidimensional nature of the renewable energy market's responses to economic trends and find that there is a long-term interplay among the variables under linear and non-linear models. We found empirical evidence indicating that the nexus is asymmetric. However, in the long term, GDP exhibits an asymmetric positive impact on renewable energy consumption in the linear model. This shows that economic growth positively correlates with Indonesia's adoption of sustainable renewable energy sources. Similarly, urbanisation shows a positive response, with expanding cities boosting demand for cleaner and greener energy. Surprisingly, exchange rates show an asymmetric response, demonstrating that depreciation of local currency has a disproportionate negative impact on renewable energy investment during economic downturns. Inflation also exhibits a negative asymmetric response due to eroding purchasing power that reduces investment in renewables. Meanwhile, net inflow of FDI emerges as a critical driver in favourable economic conditions, dramatically amplifying renewable energy capacities. Therefore, during economic recessions, FDI’s impact diminishes and emphasises the significant importance of tailored interventions. Based on the findings of this study, which demonstrate the profound interplay of how the Indonesian economy shapes and is affected by the renewable energy market, we encourage the adoption of policies that promote sustainable energy development while increasing economic resilience. We recommend that policymakers support renewable energy diversification to lessen the vulnerability of exchange rate fluctuations. Attracting FDI is also crucial, as policies can help strengthen the investment climate and bolster the renewable energy sector. Inflation-indexed incentives can help maintain confidence and foster economic growth.

Understanding the Decline of the US Dollar: Key Factors and Implications

This paper mainly focuses on the declining dominance of US dollar especially in the recent century and the role of different factors in this phenomenon. Recently decline is seen in the power of US dollar. The global dollar reserves faced so much pressure in recent times. Within two decades a sharp decline is seen in US dollar share of global currency reserves. This paper starts with the review on the factors that are causing the decline of US dollar. Many internal and external factors are causing this decline in dollar’s hegemony. These factors include external factors like de-dollarization, rise of other currencies like renminbi, euro, rise of China as a global power, rise of digital currencies, geopolitical risks, US sanctions on the Russia etc. and many internal factors like monetary policy given by US central bank, rising prices or inflation, demand for currency, economic growth, export prices, increasing federal debt etc. Countries mainly BRICS countries are moving towards de dollarization by proceeding their trade in their local currencies or currencies other than dollar, similarly rise of China as a big economic power also fastening this process as China increasing the scope of its renminbi, digital currencies also replacing paper currency effecting dollar’s hegemony, US sanctions on countries like Russia, Iran etc. also forcing states to move towards other banking systems. Likewise, US internal factors like inflation is on 40 years peak and federal debt rise up to 110% of GDP, economic growth is declining. These internal and external factors speeding up this process. As major world trade is still happening in dollar so decline in its dominance has a major impact on the global financial system. So, to study about its declining phenomenon is very important and this research mainly analyze on this declining trend of US dollar. The paper also looked at the short history of dollar that how it became the paper currency and how it emerged as main currency of the world. At the last of paper, I also talked about whether the decline of dollar is imminent? which is an important question asked by different economists and political analysts. These observations hint how the dollar’s hegemony is under threat.

A political theology for the Ghanaian context from Christ’s perspective

One of the key challenges facing contemporary Ghana is ineffective political structures and leadership. Leadership failure is the main reason why Ghana continues to experience socio-economic challenges such as poverty, hunger, poor education system, poor road networks, injustice, high unemployment rate, human right abuse, and local currency depreciation despite the country’s vast natural resources. Ghana’s socio-economic problems continue to attract scholarly attention and yet, the problems persist. As a predominantly Christian nation, the church has a major responsibility to engage the country’s political space by analysing and scrutinising political structures with the effect of chatting a new path of socio-economic and political developments. This research was, therefore, conducted to contribute to the ongoing discussion by exploring how a contextual application of political and leadership lessons embedded in Jesus’s teaching in Mark 10:35–45 might address the Ghana’s political needs. The article is a qualitative research that analysed data collected from books, Bible commentaries, journal articles, and dissertations.Intradisciplinary and/or interdisciplinary implications: This research involves systematic and/or political theology, New Testament studies, and leadership and/or governance. It argues that for Ghana to overcome her political challenges, leadership must be seen as a position of service rather than an opportunity to amass wealth at the expense of others. The article contributes to the field of political theology in the Ghanaian setting.