Local Currency Bond Markets

Abstract:     
We analyze the development of 49 local bond markets. Our main finding is that policies and laws matter: Countries with stable inflation rates and strong creditor rights have more developed local bond markets and rely less on foreign-currency-denominated bonds. The results suggest that "original sin" is a misnomer. Emerging economies are not inherently dependent upon foreign-currency debt. Rather, by improving policy performance and strengthening institutions they may develop local currency bond markets, reduce their currency mismatch, and lessen the likelihood of future crises.

Number of Pages in PDF File: 21

Keywords: bond market development, emerging market debt, original sin

JEL Classification: F30, G11, G15, O16

working papers series