The Rise in Home Currency Issuance

Abstract

Using a large sample of private international bond issues, we document a substantial decline in the share of international bonds denominated in major reserve currencies over the last two decades, and an increase in bonds denominated in issuers’ home currencies. These secular trends appear to have accelerated notably after the global nancial crisis. Observed increases in home currency foreign bond issuance was larger in countries with stable ination and lower government debt, and in emerging markets that adopted explicit ination targeting policies. We then present a model that demonstrates how the global nancial crisis could have a persistent impact on home currency bond issuance. Firms that issue for the rst time in their home currencies during disruptive episodes, such as the crisis, nd their relative costs of issuance in home currencies remain lower after conditions return to normal, due to the increased depth of the home currency market. Empirically, we show that countries with more stable ination and lower government debt were more likely to benet from the opportunity to switch to home currency foreign bond issuance presented by the crisis.