The rise in home currency issuance

Using a large sample of private international bond issues, we document a substantial decline in the share of international bonds denominated in major reserve currencies over the last two decades, and an increase in bonds denominated in issuers’ home currencies. These secular trends appear to have accelerated notably after the global financial crisis. Observed increases in home currency foreign bond issuance was larger in countries with stable inflation and lower government debt, and in emerging markets that adopted explicit inflation targeting policies. We then present a model that demonstrates how the global financial crisis could have a persistent impact on home currency bond issuance. Firms that issue for the first time in their home currencies during disruptive episodes, such as the crisis, find their relative costs of issuance in home currencies remain lower after conditions return to normal, due to the increased depth of the home currency market. Empirically, we show that countries with more stable inflation and lower government debt were more likely to benefit from the opportunity to switch to home currency foreign bond issuance presented by the crisis.