Should the U.S. Borrow in Yen?
The U.S. will need to borrow record amounts from overseas to finance bailouts and economic stimulus programs over the next few years. Now some Japanese economists are suggesting that Uncle Sam do part of that borrowing in yen. This is not as far-fetched as it may sound. The Treasury may issue a trillion dollars in new debt to finance U.S. budget deficits. Up to now, foreigners have been big buyers of this debt, but they could balk at buying more if they fear the greenback may be significantly devalued. Dollar bears acknowledge that the trade-weighted value of the U.S. currency has soared in recent weeks, but that’s temporary and largely attributable to capital repatriation by U.S. financial firms trying to shore up their balance sheets, they argue. After this one-time portfolio readjustment, the dollar could weaken again. Moreover, there is a precedent for issuing foreign currency-denominated U.S. Treasuries. In 1978 the U.S. sold “Carter bonds” denominated in German marks and Swiss fr
