Most countries have their own sovereign currency. Essentially they can print their currency. So how do countries repay their loans? And a similar question would arise while granting a loan to another country. On what repayment terms are loans granted by one country to another country?

The premise of asking this question is... Can US (for example), say just print money and revive any economy? In fact, it did do in 2009 printed out trillion dollars declared to be used for the health sector... And now it has done again added multiple trillion dollars for infrastructure... And other countries can also do... just that it 'may' lead to a devaluation of their currency. But it doesn't matter for the economy provided it continues to export... The case of zimbabwe was weird coz it was not a self-sufficient economy in the first place...

And US has also removed the gold standard in 1971. So on what basis is currency printed by US?

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    $\begingroup$ "So on what basis is currency printed by US?" On the legal basis of the Federal Reserve Act? On the practical basis that people accept the US dollar as a currency? What exactly are you asking here? $\endgroup$
    – Giskard
    Dec 27, 2021 at 9:19
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    $\begingroup$ Also, your question seems to consist of at least three separate questions. (International economics, monetary policy and why money works.) Please ask separate questions separately. (You can edit this question and copy parts from it into new questions.) $\endgroup$
    – Giskard
    Dec 27, 2021 at 9:20
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    $\begingroup$ A related and perhaps interesting topic is fractional reserve banking [duckduckgo.com/?q=fractional+reserve+banking] $\endgroup$ Dec 27, 2021 at 21:05

1 Answer 1


Only sufficiently credit worthy countries are able to borrow money internationally in their own currency. In principle you are right that such a country could effectively default by expanding the money supply until the currency is practically worthless and repaying in the debased currency.

However if this happens

(1) the reputation of the country for credit worthiness will be destroyed and they will be relegated (at least for a few years) to the second tier of countries which can only borrow in a foreign (hard) currency.

(2) the citizens of the country will not be pleased that their savings have been wiped out and will find ways to express their disapproval. This is especially true in a democratic country or a country where owners of financial assets have a substantial voice in how things are run. (Thus you should consider what kind of country you lend money to).

So the repayment of international loans is mainly a matter of international and domestic reputation. Borrowing is a repeated game.

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    $\begingroup$ There is of course a big economics literature on sovereign debt. A reference is The Economics and Law of Sovereign Debt and Default by Panizza et al. (2009) aeaweb.org/articles?id=10.1257/jel.47.3.651 $\endgroup$
    – noob2
    Dec 28, 2021 at 11:23

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