Sri Lanka’s Rising Public Debt: Have We Committed The Original Sin?
By W.A. Wijewardena -August 9, 2012
Dr. W.A. Wijewardena
An Original Sin of a different type
In Biblical terms, man is condemned as a sinner forever because his first prototype, Adam, committed the Original Sin against the caution of his creator.
In economic terms, as presented first by economists Barry Eichengreen and Ricardo Hausmann in 1999 and later refined with Ugo Panizza in 2002, the Original Sin refers to a situation where a country which is unable to borrow abroad in its own currency since foreigners do not hold that currency to lend the country concerned gets into long term economic troubles by borrowing in foreign currencies from the international markets and in their own currency from domestic markets, in the second case, if it is practised over a long period of time.
Eichengreen and Hausmann came up with the concept of the Original Sin relating to a country’s increasing public debt, both locally and abroad, in a paper presented at a symposium on New Challenges for Monetary Policy sponsored by the Federal Reserve Bank of Kansas City in 1999 under the title “Exchange Rate and Financial Fragility” (available at: here).
Only a few countries can borrow their own currencies abroad
