AFRICA NEWS AGENCY
Isabelle Lessedjina «FACED WITH CURRENCY RISK, WE MUST TAKE CONCRETE ACTION AND MOBILIZE TO BUILD A MORE RESILIENT AND SUSTAINABLE FUTURE” Badly hit by the economic crisis caused by the COVID-19 pandemic, several African countries have seen their currencies depreciate which has automatically increased their financial commitments denominated in foreign currency. However, there are solutions, such as currency hedging that can optimize financing conditions. Isabelle Lessedjina, Senior Vice President of the TCX hedge fund, explains the concept and the benefits that Africa could gain from it. Interview by Jacques Leroueil
At the heart of the TCX project is the hedging against currency risk in emerging countries. What exactly is it about? In many parts of the developing world, particularly in Africa, companies or governments that wish to borrow money on international markets can often only do it in foreign currencies (dollars, euros, etc.), even though their source of revenue to repay that debt is denominated in local currency. This is known in the economic literature as «original sin,» a term that refers to a situation in which some countries are unable to borrow abroad in their domestic currency, resulting in foreign exchange risk, i.e., uncertainty about the evolution of the exchange rate between currencies, which can quickly become problematic. In such a scenario, foreign currency borrowers in these countries can very quickly find themselves weakened by sudden exchange rate movements, which can impair their ability to repay. Funds specialized in currency hedging exist precisely to avoid this type of damaging situation.
How did the idea of these funds come about which, in a way, guarantee the absence of «bad surprises» in terms of financing conditions? As is often the case, a solution is born out of a given need. As far as TCX is concerned, the need came from the development finance institutions (DFIs),
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Isabelle Lessedjina, Senior Vice President at TCX- Photo credit RR
which wished to hedge their commitments against the exchange rate risk of the countries in which they operated. From this possible hazard came the idea of launching a dedicated hedge fund; a solution that until then - did not exist. Since most DFIs prefer not to carry out this type of transaction themselves, it was decided to launch an ad hoc financial vehicle, TCX, to share this risk globally. This is how our fund was created in 2007, in Amsterdam (Netherlands), supported by a group of development financial institutions, governments and investment companies specialized in microfinance. Since then, through futures contracts and currency swaps, we have hedged more than 3,500 transactions worldwide for a cumulative amount of over $8 billion.
