Home Currency Issuance in Global Debt Markets

Historically, businesses in most countries have not been able to sell bonds denominated in their home currencies to foreign investors. In recent decades this trend has been changing. Research shows that bonds denominated in currencies other than the major global currencies have increased, particularly following the global financial crisis. However, not all countries were affected equally. Countries that were able to take advantage of the temporary disruption and near-zero interest rates in global financial markets were the ones with a combination of low government debt and a history of stable inflation. Many businesses that issue debt in international markets do not do so in their country’s home currency. In fact, 97 % of debt is issued in the five largest “global ” currencies—the U.S. dollar, the euro, the British pound, the yen, and the Swiss franc—but borrowers in these countries account for only 83 % of all international debt issued (Hausmann and Panizza 2003). This long-standing trend of borrowing in a different currency poses a risk known as currency mismatch, which occurs when borrowers suffer balance sheet deterioration if the exchange rate of their home currency falls in relation to the issuing currency. Nevertheless, firms may choose to issue debt in global currencies, either because investors would demand higher interest rates for dealing in home currencies or because debt in home currencies could fail t