AM | @agumack When governments and companies are able to sell bonds in their own currencies, it means that the quality of governance is improving. You can have enormous amounts of local-currency debt, but the source might be state-onwed banks (like in China). Alternatively, governments and companies can issue large amounts of bonds ... in US dollars (or euros). That is why I take the ability to issue local-currency bonds as the litmus test of the quality of governance. I want to thank Prof. John D. Burger at the Sellinger School of Business (Loyola University Maryland) for sending me the revised calculations of the stock of local currency bonds in terms of GDP for a number of countries [1]. The new calculations update the data from one of my favorite articles, published in 2006 [2].
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Speaking of local-currency bonds, there are some interesting news coming from Argentina: the government has just issued a 10-year bond in pesos. While the yield looks pretty high (15.5%), it shows the impact of renewed confidence in the ability of the Argentinean central bank to deal with the country's perennial inflation problem [3].
[1] John D. Burger, Rajeswari Sengupta, Francis E. Warnock, Vernica Cacdac Warnok: "Us Investment in Global Bonds: As the Fed Pushes, Some EMEs Pull", Economic Policy, October 2015.
[2] John D. Burger & Francis E. Warnock: “Local Currency Bond Markets”, IMF Staff Papers, Vol. 53, 2006. This is one of the most striking findings from the paper: "To gauge the importance of various factors, our estimates in column 1 of Table 3 imply that (other things being equal) if Brazil had Denmark’s rule of law, its bond market as a share of GDP would be 43 percentage points higher"
[3] Nicolás Dujovne: "Menos inflación y crédito más barato, claves del porvenir", La Nación, 17 October 2016.
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