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Overcoming Original Sin

Author

Listed:
  • Shin Hyun Song

    (Bank for International Settlements, Basel, Switzerland)

  • von Peter Goetz

    (Bank for International Settlements, Basel, Switzerland)

Abstract

This paper draws on newly expanded BIS government bond statistics to document how emerging market sovereigns have reduced their reliance on foreign currency denominated bonds since the emerging market crises of the 1990s. With external funding still important for emerging market governments, they have increasingly been able to borrow from foreign investors in their domestic currency. In this respect, emerging market governments are overcoming “Original Sin”. The flipside of these developments is that foreign investors increasingly bear the currency risk associated with fluctuations in emerging market exchange rates, making foreign investors’ portfolio decisions more sensitive to prevailing global financial conditions. Emerging markets thus remain vulnerable to reversals of investor sentiment in bond markets, whether or not they have outstanding debt in foreign currency.

Suggested Citation

  • Shin Hyun Song & von Peter Goetz, 2022. "Overcoming Original Sin," Journal of Globalization and Development, De Gruyter, vol. 13(2), pages 411-433, December.
    • Handle: RePEc:bpj:globdv:v:13:y:2022:i:2:p:411-433:n:9
    DOI: 10.1515/jgd-2021-0055
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    Citations

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    Cited by:

    1. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2023. "Yet it Endures: The Persistence of Original Sin," Open Economies Review, Springer, vol. 34(1), pages 1-42, February.

    More about this item

    Keywords

    emerging market economies; sovereign bonds; international lending; international financial markets; foreign investors; Original Sin;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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