Original sin (economics)

As Original Sin (English original sin ) is called in economics a situation in which a country can not borrow on the capital market in its own currency and therefore has to borrow in foreign currency. Such a situation occurs when market participants the country and its currency have placed insufficient trust. Original Sin is a particular problem of emerging and developing countries and causes for the countries concerned may enormous costs.


The metaphorical term " original sin " indicates that Original Sin has obviously far back trigger.

The capital market theory explains supply and demand for securities on price - in this case the interest rate. The situation that a potential debtor on the market can not find a potential creditor, explained accordingly via the at unattractive interest. It can be concluded that each borrower from a particular (possibly very high ) interest rate is also an investor who is willing to do business with him.

For countries that are affected by the phenomenon of Original Sin, does just this problem: You can find at tolerable interest in its own currency no lender. This can be explained by the fact that the interest rate offered obviously not enough of a risk premium in terms of a hedge against the threat of failure is (namely two risks: Interest is not paid on time in full and the credit itself is not punctually paid back in full). A, Original Sin ' is thus based implicitly on a situation with relatively high risk.

The sources of this risk can be two things:

  • Country risk: the potential investors appears the borrowers themselves not trustworthy enough.
  • The currency risk: The potential investors are afraid of a possible devaluation of the currency in which the loans are denominated. A devaluation of the currency during the investment period would have a direct loss of value to the investor result.

The case of a high country risk alone is for a Original Sin is not important because the country risk yes equally affects a debt in domestic and in foreign currency. For the Original Sin, however, is the currency risk of much greater importance, as a country whose currency is subject to a high risk of devaluation, though hardly credit in domestic currency will be able to absorb the other hand relatively easily in a foreign reserve currency will be able to borrow.


Original Sin presents particular capital- poor developing countries face enormous problems. Many of these countries urgently need foreign capital inflows in order to make the necessary economic development investments. The necessary credits but they can absorb due to the Original Sin only in foreign currency (U.S. dollar, Euro, ...). Although they pay far lower interest rates than for a debt in domestic currency, but as a consequence, the currency risk goes up over them: Should it come in the course of lending business to a devaluation of the currency itself verschuldenden country, the amount to be repaid in domestic currency increases expected to - the country's debt therefore rise.

This is for the countries concerned in so far as very problematic, as such a situation strongly pro-cyclical effect: Even a small causal devaluation can lead to a significant increase in government debt lead ( thus to a further devaluation and thus a further increase in government debt due to the loss of confidence and ). At the end of this process is often a national bankruptcy, which can be triggered so because of the Original Sin by a comparatively small pulse.

Consequently, Original Sin brings not only the inability to debt in domestic currency, but also risks of sovereign debt in foreign currencies. The high currency risk that is difficult for the country's access to foreign capital and makes it difficult for the country to achieve economic growth.

Measures against Original Sin

Because of its enormous economic consequences of the Original Sin of developing and emerging countries is feared. Scientists (especially VWLer ) identify a number of measures:

  • Monetary policy
  • Economic policy
  • Public debt