The required national push to finance infrastructure should not override financial stability, which is key to national security. Going forward, we need to develop new sources of risk capital so that our infrastructure needs can be financed with moderate amount of debt, even as we help the system deleverage.
A recurring theme in the literature is the ability of governments or corporates to borrow from non-residents in their own currency. The inability to borrow in ones own currency, referred to in the literature as ‘original sin’, often leads to currency mismatch, and ultimately to balance sheet vulnerability in the event of significant exchange rate changes.