Tearing down the currency wall
Most of the world seems to misunderstand why global capital is not financing the developing world’s climate transition.
Global capital is failing to fund developing economies' climate projects, and a major reason is a currency wall. Despite an abundance of long-term savings in the Global South and a pipeline of commercially viable climate projects, the connection between savings and investments is hindered. Experts estimate that $2.4 trillion annually will be needed for climate action by 2030, but domestic savings in countries like India are insufficient to meet this demand.
The issue lies in the structure of price formation, which is determined on a project-by-project basis, creating costs for investors converting local currencies to their home currency. This results in higher hedging costs, making global financing less competitive compared to local developers. Consequently, global funds only achieve lower returns, failing to meet international investors' requirements.
Once a locally funded developer secures an auction, prices become a benchmark, making it challenging for other investors to compete. The currency wall obstructs the flow of global capital into climate projects, preventing developing economies from fully financing their transition to clean energy.
Written by urgent.news from The Jakarta Post's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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- Tearing down the currency wall thejakartapost.com
