Last updated: September 2006
Volume 53, Special Issue
IMF Staff Papers

Local Currency Bond Markets

John D. Burger and Francis E. Warnock

Full Text of this Article (PDF 120K)

Abstract: This paper analyzes the development of 49 local bond markets. The main finding is that policies and laws matter: countries with stable inflation rates and strong creditor rights have more developed local bond markets and rely less on foreigncurrency-denominated bonds. The results suggest that “original sin” is a misnomer. Emerging economies are not inherently dependent on foreign currency debt. Rather, by improving policy performance and strengthening institutions, they may develop local currency bond markets, reduce their currency mismatch, and lessen the likelihood of future crises.
[JEL F30, G11, G15, O16]