The G20 countries have highlighted that emerging countries struggle to borrow in their national currencies, emphasising the potential role of multilateral development banks (MDBs) and the need for more local currency options.
‘Original sin’ in the economic sense is the inability of emerging countries to borrow in national currencies, originally described by economists Barry Eichengreen and Ricardo Hausmann. Almost from its inception the G20 highlighted this challenge, and in 2011 it launched an initiative to promote local currency bond markets. Given that this problem is partially explained by a country’s economic policy (for example, unstable monetary policy or fiscal imbalances) and institutional environment, it requires multinational platforms to resolve.
In 2023, the G20 Triple Agenda Report highlighted the potential role of multilateral development banks (MDBs) in this process. The report emphasised the necessity of offering more local currency options to clients and the potential to minimise ‘original sin’. A 2024 T20 policy brief also stressed the inability of countries to borrow in their local currencies as a key impediment to their development and one of the main asymmetries of the current global financial safety net.
Of course, the issue is well known to international financial organisations (IFOs), and they highlight the opportunity to use member countries’ currencies in their operations. In most cases, regional MDBs do use some local currencies to finance operations or provide loans. However, none of them has a large share of currencies other than US dollars and euros, be it assets or liabilities (Table 1). Only the Eurasian Development Bank has a US dollar share of less than a half of its borrowings, but even in this case the US dollar share is increasing. In contrast to regional development banks, the World Bank has more than 99% of assets and liabilities in hard currencies.
Table 1: Breakdown of borrowing (B) and lending (L) of MDBs by currency, 2024, % to total
ADBa
AfDBb
IsDBc
IADBd
EDBe
B
L
B
L
B
L
B
L
B
L
US dollar
64.5
75.4
51.3
46.5
83.3
44.4
78.1
87.6
43.1
Euro
6.9
6.7
18.8
44.8
16.2
29.7
0.1
9.3
Pound sterling
9.3
6.1
0.5
8.5
9.1
Australian dollar
5.7
4.6
Japaneae yen
0.3
4.2
3.9
0.01
5.8
Canadian dollar
3.5
3.8
Chinese yuan
0.9
0.2
11.6
10.6
Russian ruble
0.003
22.3
Indian rupee
0.5
0.1
1.6
Indonesian rupiah
0.1
0.5
0.1
Brazilian real
0.1
0.1
SA rand
0.3
8.7
0.01
a Asian Development Bank
b African Development Bank
c Islamic Development Bank
d Inter-American Development Bank
e Eurasian Development Bank (for the EDB, currency breakdown is only available for the bonds issued)
There are several ways to improve the above situation using the expertise of MDBs in financial matters and their on-the-ground experiences with countries’ economies.
First, IFOs are well positioned to manage foreign exchange risk, with deep expertise, large size and wide country coverage for currency risk-hedging opportunities. G20 countries, as members of such organisations, can influence the financial policies of institutions and encourage the use of national currencies. Each G20 member has a representative on the board of governors of at least one of the regional MDBs, and the board of governors approves strategic goals for the 5–10-year period. These strategic goals may include targets on the share of loans in national currencies. The strategy of the New Development Bank can serve as an example: it aims to increase the share of loans in BRICS currencies to 30% by 2026. The usage of local currencies by MDBs, as researchers underline, can have a positive effect on the economies of developing countries by increasing the liquidity of their national currencies.
Second, IFOs may provide technical assistance in debt management, including consultations on the currency structure of the debt.
Third, despite the well-known advantages of local currency debt and risks associated with the hard currency debt for the borrower, local and external currency debts are not distinguished in global statistics and are treated equally in most cases. IFOs are well positioned to transform the current framework, for example, by treating local and hard currency debt in a different way and encouraging member countries to borrow in local currencies.
* The views expressed in T20 blog posts are those of the author/s.
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Commentary
Overcoming ‘original sin’: MDBs to the rescue?
The G20 countries have highlighted that emerging countries struggle to borrow in their national currencies, emphasising the potential role of multilateral development banks (MDBs) and the need for more local currency options.
‘Original sin’ in the economic sense is the inability of emerging countries to borrow in national currencies, originally described by economists Barry Eichengreen and Ricardo Hausmann. Almost from its inception the G20 highlighted this challenge, and in 2011 it launched an initiative to promote local currency bond markets. Given that this problem is partially explained by a country’s economic policy (for example, unstable monetary policy or fiscal imbalances) and institutional environment, it requires multinational platforms to resolve.
In 2023, the G20 Triple Agenda Report highlighted the potential role of multilateral development banks (MDBs) in this process. The report emphasised the necessity of offering more local currency options to clients and the potential to minimise ‘original sin’. A 2024 T20 policy brief also stressed the inability of countries to borrow in their local currencies as a key impediment to their development and one of the main asymmetries of the current global financial safety net.
Of course, the issue is well known to international financial organisations (IFOs), and they highlight the opportunity to use member countries’ currencies in their operations. In most cases, regional MDBs do use some local currencies to finance operations or provide loans. However, none of them has a large share of currencies other than US dollars and euros, be it assets or liabilities (Table 1). Only the Eurasian Development Bank has a US dollar share of less than a half of its borrowings, but even in this case the US dollar share is increasing. In contrast to regional development banks, the World Bank has more than 99% of assets and liabilities in hard currencies.
Table 1: Breakdown of borrowing (B) and lending (L) of MDBs by currency, 2024, % to total
a Asian Development Bank
b African Development Bank
c Islamic Development Bank
d Inter-American Development Bank
e Eurasian Development Bank (for the EDB, currency breakdown is only available for the bonds issued)
Source: AfDB, 2024; ADB, 2024; EDB, 2024; IADB, 2024; IsDB, 2024; IsDB, 2025
There are several ways to improve the above situation using the expertise of MDBs in financial matters and their on-the-ground experiences with countries’ economies.
First, IFOs are well positioned to manage foreign exchange risk, with deep expertise, large size and wide country coverage for currency risk-hedging opportunities. G20 countries, as members of such organisations, can influence the financial policies of institutions and encourage the use of national currencies. Each G20 member has a representative on the board of governors of at least one of the regional MDBs, and the board of governors approves strategic goals for the 5–10-year period. These strategic goals may include targets on the share of loans in national currencies. The strategy of the New Development Bank can serve as an example: it aims to increase the share of loans in BRICS currencies to 30% by 2026. The usage of local currencies by MDBs, as researchers underline, can have a positive effect on the economies of developing countries by increasing the liquidity of their national currencies.
Second, IFOs may provide technical assistance in debt management, including consultations on the currency structure of the debt.
Third, despite the well-known advantages of local currency debt and risks associated with the hard currency debt for the borrower, local and external currency debts are not distinguished in global statistics and are treated equally in most cases. IFOs are well positioned to transform the current framework, for example, by treating local and hard currency debt in a different way and encouraging member countries to borrow in local currencies.
* The views expressed in T20 blog posts are those of the author/s.
13 Aug 2025
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