2.1.5. Currency Denomination

Bonds can be issued in any currency, although a large number of bond issues are made in either euros or US dollars. The currency of issue may affect a bond’s attractiveness. If the currency is not liquid or freely traded, or if the currency is very volatile relative to major currencies, investments in that currency will not appeal to many investors. For this reason, borrowers in developing countries often elect to issue bonds in a currency other than their local currency, such as in euros or US dollars, because doing so makes it easier to place the bond with international investors. Issuers may also choose to issue in a foreign currency if they are expecting cash flows in the foreign currency because the interest payments and principal repayments can act as a natural hedge, reducing currency risk. If a bond is aimed solely at a country’s domestic investors, it is more likely that the borrower will issue in the local currency.