Foreign currency-denominated borrowing

Updated: Aug 20, 2021

Borrowing denominated in a currency other than that of the debtor’s country. If government debt is denominated in foreign currency, this removes the temptation for the government to cause or permit domestic inflation to ease its debt burden. If a country has a record of past inflation, and lenders expect this to continue, foreign currency-denominated borrowing may be cheaper than borrowing in domestic currency, where high interest rates are required to compensate lenders for the risk of further inflation.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.