What can the Government do, aside from spending money to boost the economy?

BESman

Flamed Diving wrote: »

Not to hand, but if creditors lent money to Ireland (via bonds or otherwise) in Euro, can you think of any reason why they would accept money back in devalued Punts? It simply doesn't work like that. Ze Germans would want their money back in Euro or in Punts, paid up to the difference between the currencies.

In otherwords, for every cent you devalue, you add a cent onto our Euro debt. Ignoring any capital flight preceding the devaluation, the great little boost that GDP would get from a devalued currency wouldn't count for much when the country is instantly more insolvent than it already is.

I really should look into this more as I hope to get into the bond market eventually (Greece bonds would be worth a punt, excuse the pun) but my understanding was that you took the risk of buying a government bond from another country, currency risk included, and it is repaid in that currency, which is then converted to whatever currency you wish after payment. The crucial thing is, is that the bond is repaid at its currency value, which can be decimated by currency valuations. Hence the fiasco of Argentinian and Russian bondholders in recent years. Am I way off the mark on this?

Flamed Diving

BESman wrote: »

I really should look into this more as I hope to get into the bond market eventually (Greece bonds would be worth a punt, excuse the pun) but my understanding was that you took the risk of buying a government bond from another country, currency risk included, and it is repaid in that currency, which is then converted to whatever currency you wish after payment. The crucial thing is, is that the bond is repaid at its currency value, which can be decimated by currency valuations. Hence the fiasco of Argentinian and Russian bondholders in recent years. Am I way off the mark on this?

This is one for EM, I think.

Économiste Monétaire

BESman wrote: »

I really should look into this more as I hope to get into the bond market eventually (Greece bonds would be worth a punt, excuse the pun) but my understanding was that you took the risk of buying a government bond from another country, currency risk included, and it is repaid in that currency, which is then converted to whatever currency you wish after payment. The crucial thing is, is that the bond is repaid at its currency value, which can be decimated by currency valuations. Hence the fiasco of Argentinian and Russian bondholders in recent years. Am I way off the mark on this?

The bond indenture will state the currency used in coupon and principal payments. Euro investors don't have to consider currency risk, and the lack of currency risk premia is a plus for our debt and means we're issuing in a more liquid market. Argentina issued Eurobonds denominated in Dollars which is why they tried to keep the peg for so long. The peg collapsed from 1:1 to something like 4:1 Peso-Dollar. They could default or print like crazy and destroy their economy.

BESman

Économiste Monétaire wrote: »

The bond indenture will state the currency used in coupon and principal payments. Euro investors don't have to consider currency risk, and the lack of currency risk premia is a plus for our debt and means we're issuing in a more liquid market. Argentina issued Eurobonds denominated in Dollars which is why they tried to keep the peg for so long. The peg collapsed from 1:1 to something like 4:1 Peso-Dollar. They could default or print like crazy and destroy their economy.

Thanks for clarifying that. But suppose we were in a Punt currency, and we issued Punt bonds, would euro investors then have to consider currency risk?

Économiste Monétaire

BESman wrote: »

Thanks for clarifying that. But suppose we were in a Punt currency, and we issued Punt bonds, would euro investors then have to consider currency risk?

Yes. They could, of course, hedge against currency fluctuations but that adds to the cost of our potential investors.