What is the role of foreign currency debt in precipitating financial crises? In this paper we compare the 1880 to 1913 period to recent experience. We examine debt crises, currency crises, banking crises and the interrelation between these varieties of crises. We pay special attention to the role of hard currency debt, currency mismatches and debt intolerance. We find fairly robust evidence that high exposure to foreign currency debt does not necessarily lead to a high chance of having a debt crisis, currency crisis, or a banking crisis. A key finding is some countries do not suffer from great financial fragility despite high exposure to original sin. In the nineteenth century, the British offshoots and Scandinavia generally avoided severe financial meltdowns while today many advanced countries have high original sin but have had few financial crises. The common denominator in both periods is that currency mismatches matter. A strong reserve position or high exports relative to hard currency liabilities helps decrease the likelihood of a debt crisis, currency crisis or a banking crisis. This strengthens the evidence for the hypothesis that foreign currency debt is dangerous when mis-managed. We discuss the robustness of these results and make some general comparisons based on this evidence from over 60 years of intense international capital market integration.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
11897.
Length: Date of creation: Dec 2005 Date of revision: Handle: RePEc:nbr:nberwo:11897
Note: DAE IFM ME Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: ().
Find related papers by JEL classification: N1 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations N2 - Economic History - - Financial Markets and Institutions E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit F3 - International Economics - - International Finance
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001.
"Is the crisis problem growing more severe?,"
Economic Policy,
CEPR, CES, MSH, vol. 16(32), pages 51-82, 04.
[Downloadable!] (restricted)
Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003.
"Debt Intolerance,"
NBER Working Papers
9908, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003.
"Debt intolerance,"
MPRA Paper
13932, University Library of Munich, Germany.
[Downloadable!]
Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003.
"Debt Intolerance,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 34(2003-1), pages 1-74.
[Downloadable!]
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)