Conventions, Classifications, and the Politics of Currency Clauses

This paper examines a puzzling and politically consequential feature of the international market for sovereign debt through sociological lenses. I describe and document, using a large sample of sovereign debt contracts, the practice of denominating all but the historically rich countries' debts in a handful of "hard" foreign currencies. I make the case that the currency clauses in international debt contracts drawn up for developing and emerging market issuers reflect enduring market conventions. Using content-coded data the large sample international sovereign debt prospectuses and qualitative evidence from interviews with market players (including underwriters, debt managers, and contract lawyers), I explore the puzzling endurance of the convention and the politics of changing market conventions in an international context marked by the redistribution of political and economic power.