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Asian Development Bank (ADB) is changing its currency management practices to benefit borrowers from its concessional Asian Development Fund (ADF).
The current practice of managing ADF resources in as many as 15 currencies will be discontinued and an approach based on special drawing rights (SDR) introduced, according to the ADB.
When asked about the possible impact of changing currency management practices, an official of ADB Dhaka office said Bangladesh's position would remain as usual because the government is following SDR.
Talking to the FE, the ADB official said Bangladesh is expected to receive US$1.8 billion in the next three years and half of this amount-US$0.90 billion-is expected to be provided under ADF.
Since 1973 ADF has been ADB's major instrument of concessional financing to help fight poverty and improve the quality of life in the poorest developing member countries in Asia and the Pacific, still home to 720 million people or two thirds of the world's poor.
During the 4th ADF IX meeting held in Seoul, Republic of Korea 11-12 May 2004, twenty eight members of ADB pledged their contributions and agreed on a $7.0 billion total replenishment for the ADF IX programme, covering 2005 to 2008, and the introduction of grants.
Under the new system, while ADF donor contributions will continue to be made in national currencies, US dollars or in SDR, ADB will convert these contributions along with ADF loan reflows into the currencies that constitute the SDR.
SDR is a unit of account of IMF and some other international organisations, valued based on a basket of key international currencies, currently consisting of the euro, Japanese yen, pound sterling and US dollar.
Under the current practice, borrowers' obligation to repay ADB loan is effectively determined based on the currencies that ADB takes out of its liquidity pool for disbursement. Instead, in the future the borrowers' obligations regarding repayment of new ADF loans will be determined purely in SDR.
"The change in system is in line with the overarching objective for ADB to be more relevant, responsive, and client oriented," says ADB Treasurer Mikio Kashiwagi.
"The advantages are that it provides borrowers with a simplified and predictable currency system; offers a consistent loan product to borrowers; harmonises ADB's practices with those of other multilateral development banks; and enables both borrowers and ADB to manage and mitigate exchange risk exposure," adds Mikio Kashiwagi.
The proposed currency practice will not change ADF's replenishment framework or the terms and modalities of ADF concessional financing.
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