Policy Papers

Review of The Institutional View on The Liberalization and Management of Capital Flows — Background Note on Assessing Systemic Financial Stability Risks Due to FX Mismatches

Publication Date:

March 30, 2022

Electronic Access:

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Summary:

This note outlines the approach of the proposed revision to the Institutional View (IV) when assessing whether systemic financial stability risks are elevated due to foreign currency (FX) mismatches. The approach builds on the staff guidance regarding risk assessments in bilateral surveillance, while allowing for flexibility to draw on future advances in best practice. This note proposes a two-step approach to assess systemic risks from FX mismatches. This note is organized as follows. Section II outlines the sources of systemic risks stemming from FX debt and potential amplification channels. Section III outlines the risk assessment approach in practice and Section IV concludes.

Series:

Policy Paper No. 2022/010

Subject:

Currencies Financial sector policy and analysis Financial statements Foreign exchange Monetary policy Money Political economy Public financial management (PFM) Systemic risk Systemic risk assessment

Frequency:

occasional