Comment by giantg2
16 days ago
That's true for domestic public debt. But in the scenario given by the parent where the dollar falls out of favor, it is assumed that we could be issuing public foreign debt in foreign currency. Even if it was still domestic currency, the FX rate would matter to the foreign investors. Interest rates matter. So does inflation. Money supply is less relevant than the actual inflation it generates. Most debt instruments rely on the interest rates that fluctuate based on monetary policy to combat inflation. Eg your interest on debt will increase as your inflation rate does. Even the world bank will jack up your interest if your currency has issues, such as rampant inflation.
> it is assumed that we could be issuing public foreign debt in foreign currency.
That isn't how it works. You issue bonds, denominated in your own currency, and promise to pay the bearer of the bonds a coupon (interest) and repay the full amount (in USD) at the end of the bonds life.
Unless I misunderstood what you're saying.
There are multiple structures for foreign debt instruments, of which your definition is one. Even using your example, the "(in USD)" is the part that might change if USD falls out of favor as the context of this chain is discussing.