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foreign currency-denominated borrowing


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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.

Subjects: Economics.


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