NRI Papers
No. 152 April 1, 2010
  From “Global Finance” to “Local Finance”
— A New Form of Financial Globalization through Local Currency Markets —
 
Yutaro OKU

The financial crisis starting in 2007 saw an increasing trend toward financing in local currencies in the Asian financial markets. Factors that drove this increase included: (1) dysfunction of international financial markets (such as the euro market) due to rapid credit crunch and (2) activation of “synthetic US dollar financing,” whereby borrowers finance in local currencies and convert the proceeds to US dollars via swap markets to realize lower financing costs. Additionally, (3) growing needs for financing in Asian local currencies arising from economic stimulus measures (public expenditures) have also contributed to the increase.

Such financing in local currencies was supported by the growth of financial and capital markets in Asian countries, reflecting the financial sector reforms after the Asian financial crisis. The growth was also facilitated by the stabilization of local currencies through policy initiatives such as bilateral currency swap agreements, and expected market deepening through initiatives such as the “Credit Guarantee and Investment Facility” of the Asian Development Bank.

Japanese companies are also likely to shift the focus of financing to Asian local markets, reflecting the growth of local financial markets and the increasing needs to strengthen sales in emerging markets. Under such conditions, Japanese financial institutions are required to reorganize business structures by adopting the following approaches: (1) defining business areas as a financial group and building a business network in each local market; (2) optimizing global risk allocation; (3) globally optimizing the measures and currencies of financing and (4) developing financial infrastructure for cross-border transactions.

Contents
I Expansion of Local Currency Markets after the Global Financial Crisis
II Current Status of Asian Local Currency Markets
III Aiming at the “Localization” of Japanese Financial Institutions

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