International Finance : What currency for large international debts?

January 30, 2017 1:14 PM

For the sake of this question assume that a powerful US businessman with many US and overseas-based commercial interests has accrued large debts to Russian banks, say a few hundred million or so. I don't know anything about international financing at that scale. Would that hypothetical debt be held and serviced in US dollars or Rubles (or something else)?
posted by AndrewStephens to Work & Money (6 answers total)

Best answer: It would be up to the parties involved, but dollars are far more likely than any other currency, especially if he's based in the U.S. Pounds are another possibility.
posted by praemunire at 1:23 PM on January 30, 2017 [2 favorites]

(If the businessman has debt in a currency he doesn't want to be exposed to, he can always engage in currency swaps with another entity to hedge them.)
posted by praemunire at 1:23 PM on January 30, 2017 [1 favorite]

Best answer: Could be almost anything. For example, there's quite an important case in Canadian tax law where Shell Canada arranged to borrow a US$100M, but they actually borrowed the money in NZ$, even though there was no other connection to NZ in the contract -- the borrowers and lenders weren't in New Zealand, the money wasn't going to be spent there. They just wanted to arbitrage some expected currency fluctuations as part of the deal.
posted by jacquilynne at 1:24 PM on January 30, 2017 [6 favorites]

As long as its a fiat currency, I don't think there would be too many problems about what the lender should be paid back in. Although, I have my suspicions about the government and people who wished to be paid in gold rather than paper/plastic money... they all died mysteriously.
posted by xplosiv at 7:27 PM on January 30, 2017

See hard currencies - currencies that are less volatile. US dollars are most likely because it's the world's reserve currency and the currency against which all others are traded. In times of turmoil, both Swiss francs and Japanese yen are seen as safe havens.

The Swiss franc also have the advantage of being the home currency of Swiss banks....
But I would say most likely dollars.
posted by plep at 8:59 PM on January 30, 2017

The problem here is that no currency is invulnerable

Well, yes, but the deal would still have to be done. One cannot wait around for an invulnerable currency to emerge.

As I mentioned above, if the deals are sufficiently large that the businessman has to worry about serious exposure to currency fluctuations, he can enter into a currency swap with another bank to hedge his exposure. At a modest fee, of course.
posted by praemunire at 8:52 AM on January 31, 2017 [1 favorite]