Publication: Why Are More Sovereigns Issuing in Euros?: Choosing between USD and EUR-Denominated Bonds
Loading...
Published
2018-01
ISSN
Date
2018-01-31
Author(s)
Editor(s)
Abstract
This paper presents and discusses the arguments offered by several sovereigns that have joined a trend starting in 2013 whereby sovereign and corporate issuers, especially in Latin America, have gradually replaced a portion of the funding raised in U.S. dollars with euros. The trend seems to respond to the divergent monetary policies followed by the U.S. Federal Reserve Board and the European Central Bank. The selected country cases state strategic and tactical arguments for increasing their issuance in euros. The strategic reasons relate to internal currency benchmarks and their rationale. In some cases, such substitution is supported by the argument that further diversification in the investor base was needed. This argument was reinforced by the relatively tight conditions in the U.S. dollar market. Tactical arguments refer to the need to open the market to the private sector and raise funding in euros, or the need to access new investors as a preliminary step to attract them to the domestic market. Several countries also admit that the optical effect of lower coupons was a relevant consideration. This paper highlights that it is important that sovereigns avoid making decisions by comparing nominal coupons in both currencies. More important, a formal debt management strategy, including a target for the currency composition, should guide debt managers. Without a strategy, the debt manager cannot tell how the issuance in a particular currency affects the exposure of the debt portfolio to foreign currency risk and helps or not in achieving the debt management objectives.
Link to Data Set
Citation
“Velandia, Antonio; Cabral, Rodrigo. 2018. Why Are More Sovereigns Issuing in Euros?: Choosing between USD and EUR-Denominated Bonds. Policy Research Working Paper;No. 8324. © World Bank. http://hdl.handle.net/10986/29289 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.Publication The Economic Value of Weather Forecasts: A Quantitative Systematic Literature Review(Washington, DC: World Bank, 2025-09-10)This study systematically reviews the literature that quantifies the economic benefits of weather observations and forecasts in four weather-dependent economic sectors: agriculture, energy, transport, and disaster-risk management. The review covers 175 peer-reviewed journal articles and 15 policy reports. Findings show that the literature is concentrated in high-income countries and most studies use theoretical models, followed by observational and then experimental research designs. Forecast horizons studied, meteorological variables and services, and monetization techniques vary markedly by sector. Estimated benefits even within specific subsectors span several orders of magnitude and broad uncertainty ranges. An econometric meta-analysis suggests that theoretical studies and studies in richer countries tend to report significantly larger values. Barriers that hinder value realization are identified on both the provider and user sides, with inadequate relevance, weak dissemination, and limited ability to act recurring across sectors. Policy reports rely heavily on back-of-the-envelope or recursive benefit-transfer estimates, rather than on the methods and results of the peer-reviewed literature, revealing a science-to-policy gap. These findings suggest substantial socioeconomic potential of hydrometeorological services around the world, but also knowledge gaps that require more valuation studies focusing on low- and middle-income countries, addressing provider- and user-side barriers and employing rigorous empirical valuation methods to complement and validate theoretical models.Publication The Marshall Plan: Then and Now(Washington, DC: World Bank, 2025-10-14)This paper is a product of the Development Policy Team, Development Economics. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication It’s Not (Just) the Tariffs: Rethinking Non-Tariff Measures in a Fragmented Global Economy(Washington, DC: World Bank, 2025-10-22)As tariffs have declined, non-tariff measures (NTMs) have become central to trade policy, especially in high-income countries and regulated sectors like food and green technologies. Although NTMs may serve legitimate goals, they could also sort countries and firms into or out of markets based on compliance capacity and differences in product mix. Documenting recent advances in the estimation of ad valorem equivalents (AVEs), this paper uncovers new patterns of use and exposure of NTMs. High-income countries rely more heavily on NTMs relative to tariffs, while low- and middle-income countries face steeper AVEs on their exports. Firm-level evidence shows that NTMs disproportionately affect smaller firms, leading to market exit and concentration. Poorly designed NTMs can harm productivity and welfare, while coordinated, capacity-aware use can deliver inclusive outcomes. Policy design, transparency, and diagnostics must evolve to reflect the growing role—and risks—of NTMs in a fragmented global trade landscape.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Looking Beyond the Euro Area Sovereign Debt Crisis(World Bank, Washington, DC, 2012-03)Three years into the euro area sovereign debt crisis, investors continue to shun periphery government bonds, European banks are under severe funding pressures in both the dollar and euro private term markets, and the euro area is facing an anemic growth outlook. On the face of it, the scenario portends gloom. But upon closer examination of the inner workings of the European Union (EU) governance system, the ongoing adjustment in the banking sector, and the rewiring of the landscape of euro sovereign debt markets, the future scenario looks more balanced, particularly following the conclusion of the protracted negotiations on Greek bond exchanges under an EU-backed voluntary private sector involvement (PSI) scheme. As euro area leaders formulate significant structural reforms to deal with the continent's longstanding fiscal and governance shortcomings, this note argues that striking a balance between market disciplines and centralized rule-making is the best way forward.Publication The Crisis in the Euro Zone : Did the Euro Contribute to the Evolution of the Crisis?(World Bank, Washington, DC, 2012-07)The simmering sovereign debt crisis in the Euro Zone represents a looming threat to the recovery of the world economy and could lead to a renewed global financial crisis. The purpose of this paper is to analyze the root causes of the crisis in Europe and assess the extent to which it was driven by the global financial crisis and by factors internal to Europe, notably the adoption of the common currency. Adoption of the euro led to convergence of interest rates in periphery countries to the levels in core countries and, in combination with rising capital inflows owing to greater financial integration, set off a consumption and real estate boom in periphery countries, leading to higher growth and increases in government revenue and spending. The resulting real appreciation led to a loss of competitiveness in periphery countries, adversely affecting export performance and causing rising current account imbalances. While the fiscal position remained manageable before the crisis owing to rising revenue, the recession brought about by the global financial crisis led to the burst of real estate bubbles and a financial sector crisis and to sharply increased budget deficits and worsened debt indicators and triggered the sovereign debt crisis. Core countries, in particular Germany, maintained a competitive edge through wage restraint allowing them to increase exports to periphery countries, while their banks profited from increased lending to non-core countries. In sum, the euro exacerbated intra-European imbalances whose unsustainability became evident in the aftermath of the global financial crisis and triggered the current sovereign debt crisis.Publication An Alternative Framework for Foreign Exchange Risk Management of Sovereign Debt(World Bank, Washington, DC, 2008-01)This paper proposes a measure of synchronization in the movements of relevant domestic and foreign fundamentals for choosing suitable currency for denomination of foreign debt. The selection of explanatory variables for exchange rate volatility is motivated using a New Keynesian Policy model. The model predicts that not only traditional optimal currency area variables, but also variables considered by the literature on currency preferences, such as money velocity, should be relevant for explaining exchange rate volatility. The findings show that measures of inflation synchronization, money velocity synchronization, and interest rate synchronization can be useful indicators for decisions on the currency denomination of foreign debt.Publication Public Debt Management in Emerging Market Economies : Has This Time Been Different?(2010-08-01)Despite the scale of the global financial crisis, to date it has not resulted in a sovereign debt crisis among emerging market countries. Two significant factors in this outcome are the improved macroeconomic management and public debt management in these countries over the past decade. This paper reviews the improvements in macroeconomic fundamentals and the composition of public debt portfolios in emerging market countries prior to the crisis and concludes that the policies and strategies pursued by governments provided them with a buffer when the crisis hit. Nevertheless, with the international capital markets effectively closed for over three months and domestic borrowing in many cases impacted by extreme risk aversion, government debt managers were required to adapt their strategies to rapidly changing circumstances. The paper reviews the impact of the crisis and the responses of debt managers to the drying up of international capital, decreased liquidity in markets, and sharply increased term premia. Three categories of response are identified: (i) funding from other sources to reduce pressure on market borrowing; (ii) adapting funding programs to changes in demand in the different types of securities; and (iii) implementing liability management operations to support the market. Most governments were willing to accept temporarily greater risk in their portfolios, often reversing long established strategies, at a time when financial markets were under stress. These actions contributed to the measures taken by governments to stabilize markets and prevent economies from stalling. Looking to the future, government debt managers will need to consider how they can increase the resilience of public debt portfolios for the uncertain times that lie ahead.Publication Financial Stability Issues in Emerging Market and Developing Economies(World Bank, Washington, DC, 2011-10-20)The focus of the paper is on five key financial stability issues in Emerging market and developing economies (EMDEs), which have been selected on the basis of their degree of materiality for a reasonably broad range of EMDEs; their implications for regulatory, supervisory or other financial sector policies; and the extent to which these issues are not already being addressed by other international work streams. The paper does not cover other financial stability issues that may also be relevant for EMDEs but are addressed in other G20/Financial Stability Board (FSB) work streams. Such issues include the management of sizeable and volatile capital flows; the design of policy measures to address the risks arising from systemically important financial institutions; the development of macro-prudential policy frameworks; the creation of effective resolution tools and regimes for financial institutions; strengthening the oversight and regulation of the shadow banking system; and reforming the functioning of over-the-counter derivatives and commodities markets. This paper focuses on five key financial stability issues in EMDEs: 1) application of international financial standards; 2) promoting cross-border supervisory cooperation; 3) expanding the regulatory and supervisory perimeter; 4) management of foreign exchange risks; and 5) developing domestic capital markets.
Users also downloaded
Showing related downloaded files
Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication The Container Port Performance Index 2023(Washington, DC: World Bank, 2024-07-18)The Container Port Performance Index (CPPI) measures the time container ships spend in port, making it an important point of reference for stakeholders in the global economy. These stakeholders include port authorities and operators, national governments, supranational organizations, development agencies, and other public and private players in trade and logistics. The index highlights where vessel time in container ports could be improved. Streamlining these processes would benefit all parties involved, including shipping lines, national governments, and consumers. This fourth edition of the CPPI relies on data from 405 container ports with at least 24 container ship port calls in the calendar year 2023. As in earlier editions of the CPPI, the ranking employs two different methodological approaches: an administrative (technical) approach and a statistical approach (using matrix factorization). Combining these two approaches ensures that the overall ranking of container ports reflects actual port performance as closely as possible while also being statistically robust. The CPPI methodology assesses the sequential steps of a container ship port call. ‘Total port hours’ refers to the total time elapsed from the moment a ship arrives at the port until the vessel leaves the berth after completing its cargo operations. The CPPI uses time as an indicator because time is very important to shipping lines, ports, and the entire logistics chain. However, time, as captured by the CPPI, is not the only way to measure port efficiency, so it does not tell the entire story of a port’s performance. Factors that can influence the time vessels spend in ports can be location-specific and under the port’s control (endogenous) or external and beyond the control of the port (exogenous). The CPPI measures time spent in container ports, strictly based on quantitative data only, which do not reveal the underlying factors or root causes of extended port times. A detailed port-specific diagnostic would be required to assess the contribution of underlying factors to the time a vessel spends in port. A very low ranking or a significant change in ranking may warrant special attention, for which the World Bank generally recommends a detailed diagnostic.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.Publication Digital Progress and Trends Report 2023(Washington, DC: World Bank, 2024-03-05)Digitalization is the transformational opportunity of our time. The digital sector has become a powerhouse of innovation, economic growth, and job creation. Value added in the IT services sector grew at 8 percent annually during 2000–22, nearly twice as fast as the global economy. Employment growth in IT services reached 7 percent annually, six times higher than total employment growth. The diffusion and adoption of digital technologies are just as critical as their invention. Digital uptake has accelerated since the COVID-19 pandemic, with 1.5 billion new internet users added from 2018 to 2022. The share of firms investing in digital solutions around the world has more than doubled from 2020 to 2022. Low-income countries, vulnerable populations, and small firms, however, have been falling behind, while transformative digital innovations such as artificial intelligence (AI) have been accelerating in higher-income countries. Although more than 90 percent of the population in high-income countries was online in 2022, only one in four people in low-income countries used the internet, and the speed of their connection was typically only a small fraction of that in wealthier countries. As businesses in technologically advanced countries integrate generative AI into their products and services, less than half of the businesses in many low- and middle-income countries have an internet connection. The growing digital divide is exacerbating the poverty and productivity gaps between richer and poorer economies. The Digital Progress and Trends Report series will track global digitalization progress and highlight policy trends, debates, and implications for low- and middle-income countries. The series adds to the global efforts to study the progress and trends of digitalization in two main ways: · By compiling, curating, and analyzing data from diverse sources to present a comprehensive picture of digitalization in low- and middle-income countries, including in-depth analyses on understudied topics. · By developing insights on policy opportunities, challenges, and debates and reflecting the perspectives of various stakeholders and the World Bank’s operational experiences. This report, the first in the series, aims to inform evidence-based policy making and motivate action among internal and external audiences and stakeholders. The report will bring global attention to high-performing countries that have valuable experience to share as well as to areas where efforts will need to be redoubled.Publication Business Ready 2024(Washington, DC: World Bank, 2024-10-03)Business Ready (B-READY) is a new World Bank Group corporate flagship report that evaluates the business and investment climate worldwide. It replaces and improves upon the Doing Business project. B-READY provides a comprehensive data set and description of the factors that strengthen the private sector, not only by advancing the interests of individual firms but also by elevating the interests of workers, consumers, potential new enterprises, and the natural environment. This 2024 report introduces a new analytical framework that benchmarks economies based on three pillars: Regulatory Framework, Public Services, and Operational Efficiency. The analysis centers on 10 topics essential for private sector development that correspond to various stages of the life cycle of a firm. The report also offers insights into three cross-cutting themes that are relevant for modern economies: digital adoption, environmental sustainability, and gender. B-READY draws on a robust data collection process that includes specially tailored expert questionnaires and firm-level surveys. The 2024 report, which covers 50 economies, serves as the first in a series that will expand in geographical coverage and refine its methodology over time, supporting reform advocacy, policy guidance, and further analysis and research.