Borrowing in Foreign Currency Limits Monetary Sovereignty

• Borrowing in foreign currency means you have to acquire that currency to make payments

• Usually, borrowing in currency of more powerful country

• Argentina, during peso convertible period:

  • Money supply needed to grow along with the economy

  • But supply of pesos was tied to supply of U.S. dollars

  • Not enough dollars earned through export sales

  • Had to borrow U.S. dollars to maintain the peg