medium · Corporate Credit Analysis

Which of the following describes the 'printing-press argument' in sovereign credit analysis and its primary limitation?

1. Sovereigns can print foreign currency to pay international bonds, but only if they have a trade surplus.
2. The argument states that printing money is always a default event, which is why local currency ratings are always lower than foreign currency ratings.
3. Sovereigns cannot default on local-currency debt because they can print money, but this leads to inflation that erodes the real value for creditors.
4. Printing money is illegal under the Basel framework, so it has no impact on modern sovereign credit ratings.

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