Barry Eichengreen

After serving as a senior policy advisor to the International Monetary Fund in 1997 and 1998, Eichengreen turned the lessons of the Asian financial crisis into a program of reform for the international financial architecture. The "original sin" hypothesis, introduced with Ricardo Hausmann in 1999, located the problem in the structural asymmetry of the international monetary order rather than in the policy failures of individual countries. The term describes a situation in which a country cannot borrow abroad, or borrow long term, in its own currency, and the name is a reference to the Christian concept of original sin. Measuring original sin as the shares of home-currency-denominated bank loans and international bond debt, Eichengreen and Hausmann showed that it was present in most developing economies and independent of past histories of high inflation and currency depreciation. That early study nevertheless left the causes of original sin as an open question.

A second version, written with Ugo Panizza in 2002, discarded the domestic element and redefined international original sin as a situation in which most countries are unable to borrow abroad in their own currency. The authors argued that almost all countries, with the exception of the United States, the euro area, Japan, the United Kingdom and Switzerland, suffered from it over time. They concluded that weaknesses in national macroeconomic policies and institutions were not statistically related to original sin, and that the only statistically robust determinant was country size. The main causes they identified were international transaction costs, network externalities and imperfections in global capital markets, all of them beyond the control of an individual country. The remedy was therefore an international initiative: a basket index of emerging-market currencies in which international financial institutions could issue debt until a liquid market in the index had developed.

The hypothesis met with criticism. Burger and Warnock showed that adding information on domestic bond markets allowed emerging economies with stronger institutions and credible policies to develop local bond markets and attract global investors. Reinhart, Rogoff and Savastano argued that the central problem of emerging economies was debt intolerance, learning to borrow less rather than learning to borrow more in domestic currency. Goldstein and Turner held that large output losses from currency mismatches during financial crises could not be attributed to original sin, making it not a sufficient condition for mismatch; Eichengreen and his co-authors responded in their final version by redefining the domestic component as the inability to borrow domestically long term at fixed rates. The dispute turned on whether emerging-market crises originate in national policy or in the structure of the international monetary order.

The interest in Asia and China extended this line of work. His Berkeley profile lists exchange rates and capital flows, European integration and the euro, Asian integration with a focus on exchange rates and financial markets, the impact of China on the international economic and financial system, and IMF policy as research fields. In 2015 he published How Global Currencies Work with Livia Chitu and Arnaud Mehl, The Korean Economy: From a Miraculous Past to a Sustainable Future with Yung Chul Park, Wonhyuk Lim and Dwight H. Perkins, and the co-edited volume on Renminbi Internationalization. That work on whether the international system must rest on a single dominant currency, and on the possibility of a more multipolar monetary order, continued in Exorbitant Privilege and in the 2026 book Money Beyond Borders: Global Currencies from Croesus to Crypto.