Chapter

Original Sin

Edited by Barry Eichengreen and Ricardo Hausmann

in Other People's Money

Published by University of Chicago Press

Published in print February 2005 | ISBN: 9780226194554
Published online February 2013 | e-ISBN: 9780226194578 | DOI: http://dx.doi.org/10.7208/chicago/9780226194578.003.0011
Original Sin

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This chapter proposes the creation of a synthetic unit of account in which claims on a diversified group of emerging-market economies can be denominated, together with steps by the international financial institutions to develop a liquid market in claims denominated in this unit. As this new unit conquers space in the global portfolio, it will become possible for emerging-market borrowers to issue claims denominated in the underlying currencies and to place them on international markets. The result will be a more efficient international diversification of risks and a reduction in financial fragility. The World Bank has attempted to promote the development of insurance markets for terms-of-trade risk. The chapter's proposal is one more attempt, in this spirit, to help to complete incomplete financial markets.

Keywords: synthetic unit; emerging-market economies; international financial institutions; liquid market; claims; World Bank; insurance markets; terms-of-trade risk; financial markets

Chapter.  10398 words.  Illustrated.

Subjects: International Economics

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