The original sin that started only later: How Austria-Hungary’s paper debt turned golden, 1870s – 1913

Conventional wisdom has that most countries were not able to issue debt denominated in domestic currency before World War I. We show that Austria-Hungary had a vast external paper debt until the 1870s; only then became foreign residents reluctant to hold unsecured debt. Austria-Hungary attempted to counteract the repatriation of paper debt by issuing gold debt. As a result, the external debt became increasingly “golden” but the dual monarchy was a net exporter of capital in the period 1880-1913. This suggests that Austria-Hungary had been free from original sin initially but began to be affected by it in the 1870s. Based on a reconstruction of the balance-of payments, we then demonstrate that a strong export performance and large remittances from emigrants counteracted capital exports and interest payments abroad and made gold standard adherence feasible.