Overcoming "original sin" to secure policy space

Speech by Mr Hyun Song Shin, Economic Adviser and Head of Research of the BIS, University College London Centre for Finance, 2021 Annual Lecture, 10 November 2021.

Fiscal policy took the lead in the policy response to the pandemic, in both advanced and emerging market economies. Emerging economies have largely overcome "original sin" (the proposition that EME borrowers cannot borrow abroad in their own currencies) since the spate of crises in the 1990s, managing to cultivate a global investor base in local currency sovereign bonds. However, this has not insulated them from the fluctuations in global financial conditions, as the currency mismatch has migrated from borrowers' to investors' balance sheets, giving rise to "original sin redux". This presentation reviews the current state of play, and introduces several analytical tools that bring this important topic to the heart of the research agenda. It concludes with a number of policy implications for overcoming original sin redux.