Monetary Implications of Cross-Border Derivatives for Emerging Economies

Download or read book Monetary Implications of Cross-Border Derivatives for Emerging Economies written by Armando Méndez Morales and published by INTERNATIONAL MONETARY FUND. This book was released on 2001-04-01 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper surveys concepts, practices and analytical literature to assess benefits and risks for monetary stability of cross-border currency and interest rate derivative operations in calm and turbulent periods, with a view of extracting implications for emerging economies. Monetary authorities must prevent one-sided positions in the currency, favor asset substitutability, and incorporate the enriched information set provided by derivative-based transactions into monetary policy design. In some circumstances, the use of derivatives by monetary authorities may help fulfill this role. By contrast, surcharges to compensate for a downward impact of derivatives on the cost of capital appear neither advisable nor necessary.