I was reading that when a Sovereign issues bonds in local currency then the risk is lower since it can print currency to repay the bonds.
But if it issues the bonds in foreign currency then it could still print local currency, exchange it into the foreign currency and then repay the bonds. So what is the problem with that?
I understand its currency will depreciate either way under both scenarios.
What am I missing?
Thanks,
George
The assumption is that the sovereign is a country with a hard worldwide accepted global currency. For the time being these tradable hard currencies are JPY, USD, CHF, AUD, CAD, EUR and GBP. Note that the EUR is a hard currency but that the different national government can not print Euros at their own discretion.
The problem with printing local currency to repay debt is that you can’t do that forever. At some point in time investors might loose trust and sell-off.
Regards, Oscar
If Argentina issues bonds with a par value of ARS 1,000, then they can print pesos and pay off the bonds at ARS 1,000 apiece, regardless of the depreciation of the ARS. Printing pesos solves the problem.
If Argentina issues bonds with a par value of USD 1,000, then they can print pesos and pay off the bonds at USD 1,000 apiece, but as the ARS depreciates vis-à-vis the USD, they will have to pay them off at higher and higher ARS amounts. Printing pesos doesn’t solve the problem.
Oh ok, I think I got it now.
If the debt is in pesos, then no matter what, only 1,000 pesos will have to be printed to repay the debt.
If the debt is in USD (=1,000 pesos), and if the peso depreciates, then a lot more pesos will have to be printed in order to repay the USD debt, so the depreciation of the peso will be much higher at the end of the day under this scenario. 
Yup.