Posted by: Dirk | October 17, 2017

MMT, Tajikistan and foreign bond investors

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!


  1. Wow, that is some 🕉️ level of cherry picking cherry picking.

    I mean what if I used some 2003 data saying the same thing with Greek government bonds and even sell the point that yields of Euro Area government bonds are converging.

    • You don’t get my point. Some people say that MMT applies only to countries that can sell sovereign securities to international investors. Using the imply that this means only the US, Canada, Australia, Switzerland, the UK, Japan and the Eurozone. My point is that this characterization is too narrow. There have always been countries that sold bonds to international investors that are not part of that list. So, my data set should be seen as a rejection of that view. You have been jumping to conclusions here. I did not say that Tajikistan always sold bonds into intl markets and I did not say that countries that sold bonds into intl markets will do so in the future.

      • Lol, It’s you who is missing.


  2. I think I get it now 🙂

    • Oh please. I mean who in the whole world claims that governments can’t borrow from foreigners in the domestic currency. Your post really doesn’t prove anything.

  3. MMT proponents admit that inflation is an actual political constraint that governments issuing hard currency do face. For s government that doesn’t issue hard currency the exchange rate is a similarly political constraint to inflation. Thus is because in addition to paying for goods and services in the domestic market (which makes them care about inflation) people want to be able to import and to buy hard currency (which makes them care about the exchange rate).

    As to your example, Tajikistan issued that bond in USD. It is always easier to sell foreign investors a bond in hard currency than it is in your domestic currency. And issuing debt in a foreign currency like Tajikistan did is frowned on by MMT proponents because it reduces policy space by forcing the government to secure foreign currency to repay the debt.

    • I agree.

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