How "Original Sin" was Overcome: The Evolution of External Debt Denominated in Domestic Currencies in the United States and the British Dominions
AbstractThis paper examines the historical origins of "Original Sin" or why countries are unable to issue long term debt domestically or borrow abroad in terms of the domestic currency. We conduct an historical case study for a group of countries that had largely overcome the problem of Original Sin by the third quarter of the twentieth century. The group consists of several former colonies of Great Britain: the United States, Canada, Australia, New Zealand and South Africa. We trace out their debt history relating the currency to the place of issue, exploring the residency of those holding local and foreign currency debt and looking at the maturity of domestic debt in the nineteenth and twentieth centuries. We find that sound fiscal institutions, high credibility of the monetary regime and good financial development are not sufficient to completely break free from Original Sin. Conversely, poor performance in these policy realms is not, for the most part, a necessary condition for Original Sin. The factor we emphasize for the common movements across the five countries is the role of shocks such as wars, massive economic disruption and the emergence of global markets. The differences in evolution between the U.S. and the Dominions we attribute to differences in size, the traits of a key currency, which the U.S. possessed and the others did not, and to membership in the British Empire. The important role of major shocks suggests that the establishment of a bond market involved significant start-up costs, while the role of scale suggests that network externalities and liquidity were pivotal in the existence of overseas markets in domestic currency debt.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9841.
Date of creation: Jul 2003
Date of revision:
Publication status: published as Eichengreen, Barry and Ricardo Haussmann (eds.) Other People’s Money. Chicago: University of Chicago Press, 2004.
Note: DAE IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
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.:
- Robert G. Trevor & Stephen G. Donald, 1986.
"Exchange Rate Regimes and the Volatility of Financial Prices: The Australian Case,"
RBA Research Discussion Papers, Reserve Bank of Australia
rdp8608, Reserve Bank of Australia.
- Trevor, Robert G & Donald, Stephen G, 1986. "Exchange Rate Regimes and the Volatility of Financial Prices: The Australian Case," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 0(0), pages 58-66, Supplemen.
- Barry Eichengreen & Ricardo Hausmann, 1999.
"Exchange Rates and Financial Fragility,"
NBER Working Papers
7418, National Bureau of Economic Research, Inc.
- Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 329-368.
- Flandreau, Marc & Sussman, Nathan, 2004. "Old Sins: Exchange Rate Clauses and European Foreign Lending in the 19th Century," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4248, C.E.P.R. Discussion Papers.
- Michael D. Bordo & Angela Redish, 1987.
"Credible Commitment and Exchange Rate Stability: Canada's Interwar Experience,"
NBER Working Papers
2431, National Bureau of Economic Research, Inc.
- Michael D. Bordo & Angela Redish, 1990. "Credible Commitment and Exchange Rate Stability: Canada's Interwar Experience," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 23(2), pages 357-80, May.
- Michael Bordo & Barry Eichengreen, 1999. "Is our Current International Economic Environment Unusually Crisis Prone?," RBA Annual Conference Volume, Reserve Bank of Australia, in: David Gruen & Luke Gower (ed.), Capital Flows and the International Financial System Reserve Bank of Australia.
- Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, Elsevier, vol. 32(4), pages 423-464, October.
- Ricardo J. Caballero & Arvind Krishnamurthy, 2003. "Excessive Dollar Debt: Financial Development and Underinsurance," Journal of Finance, American Finance Association, American Finance Association, vol. 58(2), pages 867-894, 04.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.