International Academic Cooperation Research Group Discusses the Exorbitant Privilege of Developed Nations
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On June 15, 2026, the Faculty of World Economy and International Affairs and the University of Campinas (Brazil) held a seminar organized by the working group of the International Academic Cooperation project “Approaches to an Alternative International Monetary System”. The session, titled “Exorbitant Privilege in the Modern Global Economy,” featured project lead A.V. Podrugina and participant V.A. Romanova, who presented the findings of their research on measuring the exorbitant privilege across different countries.
By one definition, exorbitant privilege refers to the situation where a country earns more on its foreign assets than it pays on its foreign liabilities, even while holding a negative net investment position. While this phenomenon is typically associated with the United States, A.V. Podrugina and V.A. Romanova’s research shows that, to some extent, it also applies to other developed economies within the G20. Most of these countries are net debtors, yet they generate higher returns on their external assets than they pay out on their external liabilities. In contrast, most developing countries either post negative net investment income or earn significantly lower returns than developed nations—even when they have a positive financial account balance. Moreover, no convergence between developed and developing countries is evident. Between 2000 and 2024, investment income for most developed nations either grew or remained stable, while developing countries exhibited mixed trends: some, such as China, Mexico, and Saudi Arabia, saw income growth, while others, including Russia, Indonesia, and South Africa, experienced a decline.
These disparities between developed and developing countries can be traced to structural factors.
First, developed nations tend to invest in risky, high-yield assets while funding themselves through the issuance of safe bonds; developing countries face the opposite dynamic.
Second, developed countries are able to borrow in their own currencies, whereas developing nations are often forced to raise capital in foreign currencies—most commonly U.S. dollars. This means that depreciation of their national currencies increases the cost of their debt. In addition, demand for the reserve currencies of developed countries remains persistently high, further reinforcing their exorbitant privilege.
Third, the financial accounts of developed and developing countries react differently to crises: developed nations typically experience capital inflows during periods of instability, driven by heightened demand for safe assets, while developing countries are more likely to suffer from sharp declines in foreign investment.