So the only side event I went to today was called ” Experience gained from the CDM” and in this talk I had my “market based solution” bone tickled for the first time at the conference. The biggest surprise from the talk was that the subject of the clean development mechanism, and the emissions credit market that existed in tandem with it, acted as a way of hedging currency related risks faced by green industry in developing countries. This is because many of these industries hold foreign loans, but their income is in domestic currency, so if there is a high risk premium associated with their domestic currency, paying a foreign loan may be much more difficult. The CDM, which facilitates the transfer of capital from developed to developing countries, gives these industries foreign currency, which they can use to insure they are able to pay off debts which are held in foreign currency. Hearing this discussed I found really really exciting, because I had never even thought this was a potential advantage of capital transfers between developed and developing countries.
3 thoughts on “CDM as a Currency Hedge?”
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Amos, the key (or unexpected) piece here was the fact that the CDM brings foreign currency into developing markets and thus provides a hedge because the foreign currency is more stable than many local currencies? I’m trying to catch your excitement (but not quite feeling it). It sounds as if the mechanism provided some kind of serendipitous extra benefit–is that right, and if so, how big a benefit would that be?
Super interesting! Did they talk about whether or not the industries were already using standard currency hedging tools?
Thank you. Interesting reading.
For a layperson finances and trade can be difficult or impossible to understand.
It seems good, if CDM can reduce financial risks.
Could compensation trade, like it was used building the aswan dam, be an option for green projects ?
In hind side there must have been learned so many valuable lessons from that and other projects that one would think future projects should be and should have been managed much better.
Some time ago I came across the following link which explains finances in simple way.
https://youtu.be/UUFO4jP1468