Investopedia tells me that a weaker currency will reduce sovereign debt burdens. It is quoted as saying 'a weaker currency makes [these] payments effectively less expensive over time.' However, I cannot get my head around this.

Say the US owes the UK £100 and the exchange rate is $1 = £2 (not accurate, I know)

This means that the US will have to use $50 to pay off their debt

Now say the exchange rate weakens to $1 = £1

Then the US will have to use $100 to pay off this debt

Could someone please explain this to me, I am clearly missing something obvious?

Here is the link to the Investopedia article: https://www.investopedia.com/articles/investing/090215/3-reasons-why-countries-devalue-their-currency.asp#devaluing-currency

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    $\begingroup$ The assumption seems to be that sovereign debt is in the domestic currency $\endgroup$
    – Henry
    Jul 6, 2019 at 0:12

2 Answers 2


The US the unique case here If a country devalues its currecny, say by printing money, it will owe double of the foreigh currecny debt, in local currency: $1 = £2, then $1 = £3, and the debt in USD just went up...

On the other hand, debt priced USD loses its value (more paper dollars around). This usually means, that foreign investors will sell USD priced debt in less money, making the effective intesert on the debt rise: Say the US IOU was boight and sold for 0.95$ per 1$ return in a year, it can be sold for 0.9$.

The US will have a hard time recruiting new debt.

So The equilibrium is: interest rate - inflation = real rate.

The US is a bad example. The US did "print money" (lowered rates to zero), and exploited the rest of the world, since its own currency is the world base for trade.


It does the opposite. Your interest payments are higher unless people don't care about you devaluing the currency.

In reality a large devaluation is usually a sign of polticial instability and sends rates shooting up, it does not result in cheaper debt and other factors are more important.

Investopedia is ignoring rollover.


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