MMT, Tajikistan and foreign bond investors

Published by Anonymous (not verified) on Wed, 18/10/2017 - 7:04am in

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MMT

One criticism of Modern Monetary Theory (MMT) that I hear very often is that it applies only to the US or the countries with hard currencies that can issue bonds on international bond markets. Apart from the fact that selling bonds to foreigners is not a plus – unless you need foreign exchange – there is a market for lower-income emerging economies indeed, as the NYT reports:

This year, lower-income emerging economies are expected to issue close to $10 billion in government bonds, according to the I.M.F., more than the past two years combined.

Of all of them, a recent $500 million bond offering by Tajikistan, a landlocked former Soviet republic that has rarely interacted with global investors, was the most curious. Tajikistan is paying investors an interest rate of just over 7 percent for 10 years, and the deal was a quick and easy sell for the country’s bankers, with demand several times the amount of money secured.

This is not investment advice, but the point rather is: even small emerging economies can sell bonds to foreign investors. There is nothing magical about the US and other “hard currency” countries in terms of government bond issuance. The countries are special since forex markets trade their currencies widely, so that exchange rates are less jumpy. That, however, is a different point!