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Debt Denomination and Financial Instability in Emerging Market Economies

(p.3) Introduction
Other People's Money
Barry Eichengreen, Ricardo Hausmann
University of Chicago Press

This book provides new information on the extent to which foreign debt is denominated in foreign currency; that is, it attempts to measure the incidence of original sin. It analyzes the consequences of original sin for the economic performance and prospects of emerging markets. It investigates the underlying sources of the problem. The book proposes an international initiative to ameliorate it. Each goal is pursued with both theory and empirical analysis. The book also attempts to measure original sin and analyze its consequences and explores the channels through which macroeconomic outcomes are affected by the currency denomination of the external debt. The United States government was able to issue and market dollar-denominated bonds abroad from the beginning of the nineteenth century, although the amounts involved were small and U.S. sovereign debt had gold clauses (effectively indexing it to foreign currency) until 1933.

Keywords:   foreign debt, foreign currency, original sin, emerging markets, external debt, United States, bonds, sovereign debt, gold clauses, currency denomination

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