Other People's MoneyDebt Denomination and Financial Instability in Emerging Market Economies

Other People's MoneyDebt Denomination and Financial Instability in Emerging Market Economies

Barry Eichengreen and Ricardo Hausmann

Print publication date: 2013

ISBN: 9780226194554

Publisher: University of Chicago Press

Abstract

Recent crises in emerging markets have been heavily driven by balance-sheet or net-worth effects. Episodes in countries as far-flung as Indonesia and Argentina have shown that exchange rate adjustments that would normally help to restore balance can be destabilizing, even catastrophic, for countries whose debts are denominated in foreign currencies. Many economists instinctually assume that developing countries allow their foreign debts to be denominated in dollars, yen, or euros because they simply don't know better. Presenting evidence that even emerging markets with strong policies and institutions experience this problem, this book recognizes that the situation must be attributed to more than ignorance. Instead, the chapters of this book suggest that the problem is linked to the operation of international financial markets, which prevent countries from borrowing in their own currencies. A comprehensive analysis of the sources of this problem and its consequences, this book takes the study one step further, proposing a solution that would involve having the World Bank and regional development banks themselves borrow and lend in emerging market currencies.

Table of Contents

Introduction

Barry Eichengreen and Ricardo Hausmann

1. The Pain of Original Sin

Barry Eichengreen, Ricardo Hausmann, and Ugo Panizza

2 Must Original Sin Cause Macroeconomic Damnation?

Luis Felipe Céspedes, Roberto Chang, and AndrCés Velasco

3 A Fiscal Perspective on Currency Crises and Original Sin

Giancarlo Corsetti and Bartosz Maćkowiak

5 How Original Sin Was Overcome

Michael D. Bordo, Christopher M. Meissner, and Angela Redish

8 Why Do Countries Borrow the Way They Borrow?

Marcos Chamon and Ricardo Hausmann

9 The Mystery of Original Sin

Barry Eichengreen, Ricardo Hausmann, and Ugo Panizza

10 Original Sin

Barry Eichengreen and Ricardo Hausmann

End Matter