Seminario CEDE - Jorge Mondragón Minero

The Original Sin Hypothesis states that emerging economies are restricted to issue external debt in foreign currencies. However, little attention has been given to the question: Which foreign currency should external debt be issued? In this paper, I study external debt in foreign currency by emerging economies and its link to default risk. I document empirically that as default risk increases, the share of external debt issued in the foreign currency linked to trade falls.