Evolution of Foreign Currency Bond Issuance and the New Challenges Revealed by the Covid-19 Pandemic

Gong CHENG * Économiste senior, Office de représentation pour l'Asie-Pacifique, Banque des règlements internationaux (BRI). Contact : gong.cheng@bis.org. Les points de vue exprimés dans cet article sont ceux de l'auteur et ne reflètent pas nécessairement l'avis de la BRI. L'auteur remercie Mohammed Chahad, Benoît Mojon, Ilhyock Shim et Édouard Vidon pour leurs commentaires instructifs, et Jimmy Shek et Taejin Park pour leur excellente assistance de recherche.

We present here the evolution of foreign currency bond issuance in emerging market economies after the global financial crisis, with an emphasis on regional disparities. Between 2011 and 2019, emerging market economies have significantly reduced their dependence on foreign currency financing and have turned to local currency borrowing in domestic and international debt markets. Although local currency-denominated debt eliminates currency mismatches for the borrowers, a negative feedback loop between exchange rates and yields of local currency bonds could impair the exposures of foreign investors and lead to massive capital reversal. Developing local currency debt markets with a strong domestic investor base could be a long term structural solution for emerging market economies to consider.