Most governments issue bonds in their domestic currency to raise money when their tax receipts are less than their expenditure. There is a robust international market for these bonds when the national currency is strong and stable, such as the currencies in Figure 2.1; this data from the International Monetary Fund (IMF) shows the percentage of foreign currencies kept in reserve by 144 reporting countries.1 These currencies are known as hard currencies, that is, they are from countries where there is relative economic and political stability and the currencies are widely accepted in payment for goods or services.

If the national currency is unstable or weak for whatever reason the government may be able to issue ...

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