CEPR Working Paper – Yet it Endures: The Persistence of Original Sin

Barry Eichengreen, Ricardo Hausmann, and Ugo Panizza

November 2022


Notwithstanding announcements of progress, “international original sin” (the denomination of
external debt in foreign currency) remains a persistent phenomenon in emerging markets.
Although some middle-income countries have succeeded in developing markets in local-currency
sovereign debt and attracting foreign investors, they continue to hedge their currency exposures
through transactions with local pension funds and other resident investors. The result is to shift the
locus of currency mismatches within emerging economies but not to eliminate them. Other
countries have limited original sin by limiting external borrowing, passing up valuable investment
opportunities in pursuit of stability. We document these trends, analyzing regional and global
aggregates and national case studies. Our conclusion is that there remains a case for an
international initiative to address currency risk in low- and middle-income economies so they can
more fully exploit economic development opportunities

Yet it Endures: The Persistence of Original Sin