Colombia’s Swiss Franc Bet:
What are “eurobonds”, and could they be a solution to the U.S. debt woes?

Jen here — I’m currently in Switzerland, and so naturally my interest was piqued when I saw unusual headlines about a new CHF-denominated bond issuance from….Colombia?!? 

With its debt costs spiraling out of control, Colombia is making an unusual move: borrowing up to 10bn in Swiss francs to repurchase higher-cost debt denominated in Colombian pesos and U.S. dollars. 

Why?

In (so far unsuccessful) attempts to cool off their currency, the Swiss central bank has cut interest rates all the way back down to 0.00%.

Colombia is borrowing money at a zero percent interest rate in a foreign currency to pay back money it borrowed in its native currency and in U.S. dollars at much higher interest rates. Colombia’s current 2 year government bonds are yielding around 9.60%, by comparison. 

Per Bloomberg, the radical debt management strategy comes “after the administration of President Gustavo Petro suspended the nation’s fiscal rule for the next three years as it tries to avoid painful spending cuts. The announcement was swiftly followed by downgrades by both Moody’s and S&P last month.” 

This type of maneuver — raising debt in a low-interest foreign currency to repurchase more expensive obligations — is a classic use case for something called “eurobonds”.

“Eurobonds” are government debt issued in a currency other than that of the issuer’s home country.

They can potentially allow one country to take advantage of a significant interest rate differential in another. More commonly, they are a key tool for emerging market issuers to access cheaper or more liquid pools of capital relative to the existing demand for their debt.

To be clear, the name “eurobond” is a historical artifact; these bonds don’t need to be denominated in euros or issued in Europe. In this case though, Colombia is also preparing to issue Euro-denominated bonds to further diversify its debt base. 

But while this strategy can offer short-term interest savings and currency diversification, it comes with increased exchange rate risk and refinancing challenges — especially when loans are short-term, as is the case here.

So naturally this begs the question: could a highly indebted country like the U.S. ever use the same playbook?

Why don’t we just borrow a bunch of money at 0.00% in CHF or JPY to reduce our debt servicing costs? Hell, why don’t we just refinance all our outstanding $36tr worth of debt in those currencies?

Well, this strategy comes with major potential downside.

Eurobonds come at a cost: the issuer must repay that debt in the foreign currency, which introduces a layer of FX risk. If the local currency depreciates, the cost of servicing that debt rises in local terms. 

The U.S. borrows almost exclusively in its own currency for good reason. Unlike Colombia or other emerging markets, the U.S. dollar is the world’s reserve currency, and U.S. Treasury securities are among the most liquid, low-risk, and relatively desirable financial instruments for inventors to own globally. 

This gives the U.S. the rare ability to borrow cheaply, in large amounts, and with zero FX risk. Were the U.S. to issue debt in foreign currencies with lower interest rates like CHF or JPY, it would be exposing itself to the same risks that Colombia is now taking on, which include:

Exchange rate volatility: if the dollar weakens, the cost of servicing CHF- or JPY-denominated debt would rise sharply

Loss of monetary sovereignty: U.S. Treasuries are considered free of default risk because we can theoretically print money to pay back our debt. The U.S. would not be able to “print” Swiss francs or Japanese yen in a crisis.

Further loss of market confidence: think things are bad because investors are concerned about U.S. fiscal discipline now? A shift away from dollar-denominated debt could completely undermine global trust in the dollar’s role as the anchor of the international financial system. 

More broadly, such a move could erode the so-called “exorbitant privilege” the U.S. enjoys of issuing debt in a currency the world demands. Giving that up to chase lower interest rates would be strategically short-sighted.

What Colombia is doing is a form of tactical debt optimization: buying back discounted bonds, lowering interest expenses, and diversifying its exposure. For an emerging market with limited fiscal space, it may make sense…at least, for now. 

For the U.S. though, the solution to our mounting debt levels isn’t eurobonds. It’s fiscal discipline and economic growth. In fact, the ability to issue debt in one’s own currency is the very thing that allows countries to avoid debt traps, provided they manage that privilege responsibly. That means maintaining investor confidence, political stability, and credible long-term fiscal policy. It’s not exciting, but it’s sustainable.

Colombia’s eurobond strategy is an aggressive form of financial engineering that can work for countries with less demand for their debt, and who aren’t the global reserve currency. It is also a short-term solution that doesn’t promise a long term answer.

And for the U.S., the answer to our fiscal problems lies at home.