Sovereign Debt Shifts to Non-Dollar Currencies Amid Capital Crunch
Governments are increasingly issuing debt in non-dollar currencies as they compete with private corporations and AI infrastructure projects for limited global capital.
Governments and state entities are diversifying their funding by issuing debt in non-dollar currencies to mitigate rising costs and reduce reliance on the US dollar. This shift comes as public-sector sovereigns and private corporations compete for a limited pool of global capital, a trend highlighted during IMF and World Bank meetings in Bangkok.
Stephanie von Friedeburg, Citi's global head of public sector group, noted that this liquidity crunch is exacerbated by private capital shifting toward AI-driven infrastructure opportunities. This movement crowds out developing nations that are already struggling with heavy debt service obligations. Fitch Ratings reported that benchmark 10-year government bond yields across the 10 largest developed economies have risen by an average of 81 basis points.
While interest is growing in local currency markets—specifically the Chinese renminbi and the dollars of Australia, Hong Kong, and Singapore—von Friedeburg maintains that the US dollar will remain the dominant global reserve currency because of its unmatched depth and liquidity. In response to rising gold prices, reserve managers are also exploring improved liquidity management and borrowing against their gold reserves.
