(Indeed, I recall that some domestic policymakers were confused on this point and thought that the debt burden would actually increase as a result of translation effect on the foreign currency debt!) Such currency risk can be so extreme as to make it impossible for the sovereign to issue any sizable amount of local-currency denominated debt to international lenders.
In the literature, such countries – all in the developing world (and not including Ireland, cf. Figure 5) – were said to suffer from “Original Sin”. Happily, the number of countries suffering “Original Sin” has been diminishing in recent years. Instead, we have to acknowledge the emergence in market pricing of a new phenomenon, “redenomination risk”. How can we recognise redenomination risk?