Macroprudential Foreign Exchange Policies and Exchange Rate Risk Exposure
With the enrichment of macroprudential foreign exchange(FX)policies,macroprudential FX policies are increasingly being used as important instruments to stabilize the foreign exchange market.While existing research mostly focused on how macroprudential FX policies affect cross-border capital flows,few scholars investigated the exchange rate risk of micro-level entities.This paper examines the differential effects of macroprudential FX policies on the policy transmission and exchange rate risk exposure of financial institutions and micro-level enterprises.This paper constructs a decision-making model for micro-level enterprises to engage in domestic and foreign currency loans between banks and the market,which helps explain how macroprudential FX policies affect the exchange rate risk exposure as well as the transmission channel.The tightening of macroprudential FX policies prompts banks to tighten foreign currency lending,suppressing enterprises'demand for foreign currency loans.However,due to the existence of market financing channels,the reduction in exchange rate risk exposure for enterprises is lower than that for banks.Furthermore,as China's market financing structure is still predominantly based on commercial banks,with indirect financing being the primary market financing structure,credit channels constitute an important transmission mechanism for macroprudential FX policies.To validate the model's implications,this paper constructs the China Macroprudential FX Policies Index based on a summary of China's macroprudential FX policies.Using a sample of listed companies and banks from 2010 to 2023,this paper finds that macroprudential FX policies reduce the exchange rate risk for both banks and enterprises,but the positive effect is more prominent for banks.In terms of channels,tightening macroprudential FX policies restrict the scale of foreign currency loans by banks,thereby reducing the exchange rate risk exposure.It also reduces the exchange rate risk for enterprises with a higher dependence on bank loans to a greater extent,indicating that the credit channel is an important mechanism for policy transmission.This paper systematically analyzes the transmission path of exchange rate risk through the credit channel,which holds significant theoretical importance in clarifying the impact of macroprudential FX policies on exchange rate risk.It also has important practical implications for further improving macroprudential FX policies in China.Specifically,considering the further opening of China's financial system and the increasing sources of foreign funding,it is necessary to expand the regulatory scope of macroprudential FX policies and explore more comprehensive policies.
macroprudential foreign exchange policiesexchange rate exposurebank lending channeldependence on bank credit
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