Foreign-currency debt can be riskier than domesticcurrency borrowing because it exposes firms to exchange rate risk if they don’t have hedges in place.8 We saw during the Asian crisis in the 1990s how sovereign debt that was denominated in foreign currency led to financial instability that exchange rate devaluations only exacerbated.
In the same way, high levels of foreign-currency corporate debt could limit the scope for exchange rate adjustments to play a stabilizing role. Non-financial corporate debt is also a concern in some advanced economies. For instance, in the United States and the euro area, the quality of corporate debt has deteriorated.