> ## Content Index > Fetch the complete content index at: https://www.drdanielcash.com/llms.txt > Use this file to discover other available public pages before exploring further. # The Currency of Credit: Sovereign Ratings and the Politics of Dollar Dependence - URL: https://www.drdanielcash.com/the-currency-of-credit-sovereign-ratings-and-the-politics-of-dollar-dependence/ - Published: 2026-08-08T16:33:23.000Z - Updated: 2026-08-08T16:33:23.000Z - Author: Daniel Cash - Tags: Insights, Credit Ratings, Sovereign Debt The contemporary debate on sovereign borrowing is often framed in terms of ‘de-dollarisation’, as reported this week in the Financial Times (‘[Developing Countries Swap Out of Dollar Debt to Cut Borrowing Costs](https://www.ft.com/content/36f82232-d970-405c-97f6-8ce98725684b?ref=drdanielcash.com)’). The more immediate reality is pragmatic. Kenya has experimented with Renminbi issuance, Panama with Swiss francs, Hungary with onshore Chinese bonds converted back into Euros. These are not symbolic gestures. They are tactical attempts to reduce coupons and diversify creditor bases in a period of elevated global rates. For credit rating agencies, however, the relevant question is narrower: can these instruments be refinanced at scale, on schedule, and under stress. That answer often matters more than the headline savings. The methodological anchoring of sovereign ratings to dollar markets reflects decades of institutional development. Market depth, disclosure standards, and benchmark curves in dollar-denominated debt create what agencies term ‘financing flexibility’ - the capacity to roll over obligations without accepting punitive terms or sacrificing size. When Moody’s incorporates ‘reserve currency status’ into its sovereign framework, it is quantifying access to the world’s deepest capital markets. Fitch’s emphasis on ‘international reserve currency status’ and S&P’s weighting of a currency’s ‘international role’ point toward the same structural advantage. Dollar markets can absorb multi-billion issuance without repricing an entire curve. Other markets struggle to provide that assurance. #### Refinancing pathways and ratings logic In ratings terms, the crucial issue is not the currency of first issuance but the refinancing pathway. A sovereign that funds in RMB or CHF almost always has to transform those proceeds back into dollars or euros through cross-currency swaps, because budgetary flows are denominated in those currencies. This exposes the sovereign to the cross-currency basis - a spread that can erase coupon savings when market stress widens. Swaps also demand collateral, converting exchange-rate movements into immediate liquidity calls on the treasury. Agencies capture these vulnerabilities in their frameworks. For Moody’s, they fall under the external vulnerability indicator. For Fitch, they affect the external liquidity ratio. For S&P, they show up in gross external financing needs. What appears as cheap liability can quickly become a ratings concern if liquidity buffers, hedge tenor (whether a sovereign has locked in the cost structure for the life of the liability or not), and rollover plans are not explicit. Thin orderbooks or reliance on niche investor bases heighten auction risk. In practice, refinancing anchors return to the dollar or the euro, since those curves can absorb benchmark-sized issuance without destabilising broader debt dynamics. #### Case studies in practice Panama’s Swiss franc experiment illustrates the importance of execution over currency choice. As a dollarised economy, Panama faces no devaluation risk, yet it also lacks monetary policy tools. The treasury’s CHF issue was read initially as opportunistic or desperate. The distinction emerged in the documentation: modest sizing, comprehensive hedging, and preserved capacity to issue in dollars. What began as a question of market access was reframed as evidence of treasury sophistication. Agencies returned to their core metrics - fiscal discipline, deficit paths, rollover calendars - treating currency diversification as ratings-neutral once execution was proven. Hungary’s RMB borrowing shows how structuring determines perception. Proceeds from the panda bond were swapped immediately into euros, keeping the refinancing anchor in an established market while still reaching new investors. The swap introduced collateral requirements and liquidity management challenges, but these were preferable to exposure in a thin market. Agencies valued the clarity: new demand, known exit. Kenya’s Eurobond strategy demonstrates how process shapes interpretation. The 2025 buyback and new issue through established syndicates reassured agencies that Kenya could pre-fund maturities and maintain investor depth. The IMF programme added external validation of fiscal adjustment. In ratings logic, this signalled capacity, not exclusion. Sri Lanka’s restructuring confirms that creditor composition is less important than process integrity. Chinese bilateral participation alongside Paris Club members and private bondholders raised early concerns about comparability. Yet visible payment schedules, performance-linked step-ups, and broad creditor coordination shifted the assessment. Agencies scored the deal positively because it delivered transparency and sustainability, not because of who sat at the table. #### Methodology and monetary hierarchy What appears as neutrality in CRA criteria functions as reinforcement of monetary hierarchies. Moody’s, Fitch, and S&P all link the reserve-currency status of the dollar to sovereign financing flexibility in their assessments of the United States. Scope Ratings goes further, granting a formal uplift for all IMF SDR currencies. The effect is a hierarchy in which dollar borrowing is the default of credibility, euro issuance the secondary benchmark, and all other currencies require justification. This is not conspiracy, but methodology: a framework that privileges incumbency and scale. Diversification outside those parameters is often read as credit-neutral at best, credit-negative at worst. For sovereign debt managers, the implications are practical. Diversification requires visible strategy. Published frameworks must set out the rationale for currency choices. Hedging policies need disclosure, including collateral arrangements and liquidity buffers. Basis calculations should show net cost after swaps. Rollover calendars must be mapped with quarterly precision, and relationships with dollar and euro syndicates must be maintained, because benchmark markets remain the anchor when alternatives prove shallow. #### How agencies weigh non-dollar debt (broadly) Refinancing risk factors • Cross-currency basis can erase coupon advantage during stress. • Collateral calls from hedging expose treasuries to liquidity shocks. • Thin markets raise auction risk and inflate concessions. • Re-entry to benchmark curves often occurs at worse pricing if dependence on alternatives is evident. Agency assessment criteria • All-in cost, including swap and collateral charges. • Precision in rollover scheduling. • Evidence of sustained investor demand across cycles. • Covenant and disclosure standards matching benchmark norms. #### Conclusion Sovereigns can lower coupons through selective RMB or CHF borrowing, but their ratings remain tied to the ability to refinance in deep benchmark markets. For agencies, these choices are less about geopolitics than about execution and credibility under stress. Yet the methodological anchoring to dollar liquidity has consequences that extend well beyond ratings. By tying credit strength to access to benchmark dollar markets, agencies stabilise a monetary hierarchy that constrains development pathways. Emerging economies that seek diversification may realise short-term savings, but the ratings signal can offset those gains by raising perceived risk elsewhere. The paradox is that cost optimisation can look like market exclusion. This is where geopolitics enters. China’s ambition to internationalise the renminbi through Belt and Road lending or Panda bonds collides with frameworks that still treat RMB issuance as non-standard. Even when projects are financially sound, the absence of methodological recognition reduces their scalability. The United States, by contrast, benefits from a form of soft power: dollar dominance is sustained not only through markets and institutions but through the credit signals that govern global capital allocation. For policymakers in developing states, the effect is to narrow the range of viable strategies. Treasuries must keep dollar and euro syndicate channels open even while experimenting with alternatives. Diversification is tolerated, but credibility still flows through the dollar system. Unless methodologies evolve to recognise credible non-dollar borrowing on its own terms, each attempt to widen options risks reinforcing dependence on the very benchmark sovereigns are trying to escape.