A government which decides to borrow – either because it has programmed a budget deficit or needs to refinance maturing debts – faces two, non-mutually exclusive possibilities: borrow domestically in the local currency or borrow externally in a foreign currency.
Developed countries borrow predominantly at home and in their currencies. This is because they have deep domestic financial markets. Developing countries are different. Their governments are more likely to supplement domestic borrowing with debt from abroad in foreign currencies.
