Coming to Terms: The Politics of Sovereign Bond Denomination

• In Event: The Politics of Financial Markets

Abstract

When governments in developing countries access capital markets in the contemporary era of financial globalization, how do they do so? We explore this question via the political economy of the terms of sovereign bonds. We argue that currency denomination is an area in which government ideology matters: left governments are, all else equal, more likely to issue international debt in domestic currency, retaining some control with respect to the funds necessary to repay their obligations. Right-leaning governments, on the other hand, privilege reductions in borrowing costs and the ability to tie future governments’ hands over the use of domestic currency. Using our novel database of approximately 240,000 primary bond issues by 131 countries (1990-2016), we provide evidence that these predictions hold even as sovereign debt management has become more professionalized in debt management offices. Despite the appearance of left governments in developing countries flipping to conservative policy choices, our findings demonstrate that partisanship continues to drive economic policy in meaningful ways.

Authors

• Cameron Ballard-Rosa, University of North Carolina, Chapel Hill

• Layna Mosley, University of North Carolina, Chapel Hill

• Rachel Wellhausen, University of Texas at Austin