The Role of Foreign Currency Debt in Financial Crises: 1880-1913 vs. 1972-1997
WEFP Working Paper No. WEF 0001
46 Pages Posted: 11 Oct 2006
There are 2 versions of this paper
The Role of Foreign Currency Debt in Financial Crises: 1880-1913 vs. 1972-1997
The Role of Foreign Currency Debt in Financial Crises: 1880-1913 vs. 1972-1997
Date Written: March 2006
Abstract
We show that exposure to foreign currency debt does not necessarily increase the risk of having a financial crisis. Some countries do not suffer from financial fragility despite original sin. Before 1913 British offshoots and Scandinavia afflicted with it avoided financial meltdowns. Today many advanced countries have original sin but few have had crises. In both periods, aggregate balance sheet mismatches are associated with a greater likelihood of a crisis. The evidence suggests that foreign currency debt is dangerous when mis-managed. This is part of the difference between developed countries and emerging markets both of which borrow in foreign currency.
Keywords: Foreign currency debt, financial crises, developing countries, emerging markets
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Globalization and Capital Markets
By Maurice Obstfeld and Alan M. Taylor
-
The Gold Standard as a `Good Housekeeping Seal of Approval&Apos;
By Michael D. Bordo and Hugh Rockoff
-
Crises Now and then: What Lessons from the Last Era of Financial Globalization
-
The Great Depression as a Watershed: International Capital Mobility Over the Long Run
By Maurice Obstfeld and Alan M. Taylor
-
Currency Mismatches, Debt Intolerance and Original Sin: Why They are Not the Same and Why it Matters
By Barry Eichengreen, Ricardo Hausmann, ...
-
Emerging Market Spreads: Then Versus Now
By Yishay Yafeh, Nathan Sussman, ...
-
Emerging Market Spreads: Then Versus Now
By Paolo Mauro, Nathan Sussman, ...
-
Emerging Market Spreads: Then Versus Now
By Paolo Mauro, Nathan Sussman, ...
-
By Michael D. Bordo and Finn Kydland
-
Sovereign Risk, Credibility and the Gold Standard: 1870-1913 Versus 1925-31
By Maurice Obstfeld and Alan M. Taylor
