Debt and Money: Financial Contraints and Sovereign Finance∗

Economic analyses of of corporate finance, money, and sovereign debt are largely considered separately. I introduce a novel corporate finance framing that focuses on financial constraints at corporate and country levels, making explicit the tradeoffs involved in relying on domestic versus foreign-currency debt to finance investments or government expenditures. The new framework provides new insights into issues ranging from the cost and benefit of foreign exchange reserves to sovereign debt restructuring. ∗I am grateful to Haizhou Huang, Olivier Jeanne, Ailsa Roell, Tano Santos, Jose Scheinkman and Neng Wang for helpful comments, and to Jieyun Wu and Wei Xiong for excellent research assistance.