A Study On Currency Mismatch Of Emerging Markets

Currency mismatch, a common and objective phenomenon in open economy, is an important factor leading to frequent money tray and financia1 crises in the developing countries s in recent over 20 years. Meanwhile, it brings the increase of the cost to solve the crises. The developing countries should know the mechanism for its formation, pay special attention to its negative impacts, and take effective measures to mitigate and control the problem so as to maintain their financia1 safety.In fact, there exist serious currency mismatch in China. However, they did not enter the eye of people until the reform of the RMB exchange rate formation mechanism led to more flexible exchange rate. In such circumstances, risks brought about by currency mismatch rapidly become explicit and they impact the central bank as well as plenty of micro economic entities. Yet research and domestic monitoring on currency mismatch are at the initial stage.As an economic phenomenon constantly observable in emerging markets, currency mismatch refer to a situation that an economic entity's assets/liabilities or revenues/expenditures are sensitive to the changes in the exchange rate when its goods and capital are denominated in different currencies because of its integration into the global economic system.Currency mismatch handicap the operation of floating exchange regimes severely. Earlier financial crises provide ample evidence of the role currency mismatch have played in them. It is no exaggeration that currency mismatch pose a serious threat to financial stability and sustainable economic security. Therefore, it is always the scholars' concern that what are the causes of currency mismatches and how to control them effectively.Currency mismatch is caused by inside and outside factors. The outside reason is because of imperfection of international capital market and the new-rising market can not get enough capital. The inside reason is including underdevelopment and financial market, imperfect mechanism, unreasonable policy and unstable macro economy. Currency mismatch has strong effect on one country's macro economy, enterprises and individuals. On one hand, currency mismatch's effect on micro economic entity will pass to banking industry to make the financial system fragile and even unstablize one country's macro economy. On the other hand, currency mismatch will lead enterprises not to solve exchange rate risk.The essay makes three constructive suggestions to how to control the risk of currency mismatch, which are shown as follows: a) intensify the supervision on the risk of currency mismatch to avoid the accumulative financial risk; b) increase the elasticity of exchange rate system and implement the managed floating exchange rate system; c) carry out prudent macroeconomic policy and construct domestic capital market. The essay also proposes six measures on the basis of domestic situation. First, consummate the managed floating exchange rate system; second, perfect the structure of export and foreign direct investment; third, rationally use fiscal and monetary policy; fourth, make more efforts on the management of foreign reserve and foreign liability; fifth, develop domestic securities market and finally erect the supervision system on currency mismatch.