How does changing a country’s debt from the USD to its local currency benefit that country?

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How does changing a country’s debt from the USD to its local currency benefit that country?

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Other countries can’t control the value of USD. If they have USD debt and the value of the dollar rises against their local currency, their debt gets bigger.

Many emerging markets are having this issue right now. They took out a bunch of USD loans in the aftermath of the 2008 crash, and now that debt is getting harder to service as the dollar gets stronger.

A country generally has more control over the value of its own currency. Specifically, a country can devalue its currency by issuing more of it.
This means that its money is worth less, and therefore its debt is lower.
This also means that the cost of imported goods and services becomes higher (because they must be paid for with expensive foreign currency) and domestic goods and services become cheaper (which may boost domestic industry and exports).
The danger is that issuing too much currency can lead to hyperinflation, where the currency quickly becomes worthless. This wipes out the government debt, but it also destroys everyone’s savings and wrecks the whole economy.

Using their own currency allows a country to control their inflation and interest rates and change the monetary supply. This gives them a lot more control over the economy to help stimulate growth in weak periods or slow down overheated markets.

*But*

It also gives them the power to cause economic disaster if they do it wrong. Set the inflation rate at 10,000% to devalue government debt. Force workers to accept useless state currency instead of USD with actual value. Overly restrictive monetary supply that reduces people to bartering with chickens. Unstable currency that global investors won’t touch if you need a loan.

Having your own currency is a powerful tool, but also easily abused by inept or corrupt governments. Nations that struggle with corruption and ineptitude have often found it easier to abandon their own unstable currency and adopt the USD.

Moving from USD to your own currency is an announcement that you think you’re stable enough to handle a local currency, but interest rates will jump for a while until investors believe you.

If country A has a debt of 1000 USD, A needs to pay 1000 USD (plus interest, were going to ignore it for simplicity). This means, however much one USD is worth, A needs to pay 1000 of them. With inflation this becomes less and less every year.

Yet if As economy crashes and A can’t pay anymore, or if A doesn’t have any USD and no one wants to change As local currency for USD, A is fucked.

This changes, if A needs to pay in its local currency: Now A can just pay in its local currency and is not dependent on investors bringing USD into the country.
Also if the economy crashes and As currency experiences inflation, As debt is still 1000 A$, but one A$ isn’t 1 USD anymore. Now one A$ is just 0.01 USD. So As debt isn’t 1000 USD anymore but 10 USD.

This can be a huge benefit, if the country’s economy goes down.