Why a government might want to consider foreign currency denominated debt

As the real value of foreign currency denominated debt is not affected by domestic inflation, such debt eliminates the discretionary incentive to inflate. This in turn will reduce the expected and thus equilibrium rate of inflation. However, as foreign currency debt is affected by foreign inflation, such debt could be an attractive alternative to indexed bonds if the foreign country inflates when the domestic one would like to. (C) 1997 Elsevier Science S.A.