2018 TCX: Theory of Change


11Inability to manage foreign exchange risks is an important impediment to developing countries accessing and paying back loans made in hard foreign currencies such as USDs and Euros. Much of the finance anticipated to be invested in developing country climate action will need to be raised from international private investors because of the limited domestic resources of developing countries and the constrained fiscal capacity of donors. ‘Hard’ currencies, such as the US dollars are less volatile than many local currencies meaning that FX risk is borne by the developing countries. Because they have underdeveloped financial markets, they have little to no possibility of mitigating or ‘hedging’ currency risk. 

The Currency Exchange Fund aims to reduce FX risk in developing economies which cannot access risk mitigation in currency markets.  TCX provides FX risk-management tools in the form of hedging instruments, or products, for local currencies in more than 70 developing countries. It has hedged almost USD 6 billion worth of development finance in local currency since its inception. This paper discusses TCX’s products, services and advisory role in more detail, then presents TCX’s Theory of Change diagram and its five channels of contribution.