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Journal of Globalization and Development

Ed. by Stiglitz, Joseph / Emran, M. Shahe / Guzman, Martin / Jayadev, Arjun / Ocampo, José Antonio / Rodrik, Dani

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Redemption or Abstinence? Original Sin, Currency Mismatches and Counter Cyclical Policies in the New Millennium

Ricardo Hausmann / Ugo Panizza
Published Online: 2011-08-31 | DOI: https://doi.org/10.2202/1948-1837.1127

This paper updates our previous work on the level and evolution of original sin. It shows that while the number of countries that issue local-currency debt in international markets has increased in the past decade, this improvement has been quite modest. Although we find that countries have been borrowing at home, thanks to deepening domestic markets, we document that foreign participation in these markets is more limited than what is usually assumed. The paper shows that the recent decline of currency mismatches and the consequent ability to conduct countercyclical macroeconomic policies is due to lower net debt (abstinence) and not to redemption from original sin. We conclude that original sin continues to make financial globalization unattractive and developing countries have opted for abstinence because foreign currency debt is too risky. The promised paradise of financial globalization will need to wait for redemption from original sin.

Keywords: original sin; local-currency debt; financial globalization; currency mismatch

About the article

Published Online: 2011-08-31

Citation Information: Journal of Globalization and Development, Volume 2, Issue 1, ISSN (Online) 1948-1837, DOI: https://doi.org/10.2202/1948-1837.1127.

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©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

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