Download or read book Financial Stability in Dollarized Economies written by Ms.Anne Marie Gulde and published by International Monetary Fund. This book was released on 2004-06-15 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The process of dollarization can take multiple forms, including when a country adopts the US dollar either as its predominant currency, or establishes a bicurrency system with the local currency. This publication examines how to establish an adequate supervisory and crisis management framework in dollarized economies, particularly when central banks and regulators may be constrained in the use of standard monetary and financial policy tools. It is based on a paper produced by the IMF Executive Board, as part of the policy development work conducted by the IMFs Monetary and Financial Systems Department.
Download or read book Financial Dollarization written by A. Armas and published by Springer. This book was released on 2006-07-14 with total page 349 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume provides a rigorous and balanced perspective on the causes and implications of dollarization, and the basic policies and options to deal with it: the adaptation of the monetary and prudential frameworks, the development of local-currency substitutes, and the scope for limiting dollarization through administrative restrictions.
Download or read book Monetary Policy in Dollarized Economies written by Mr.Adam Bennett and published by International Monetary Fund. This book was released on 1999-03-15 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dollarization - the holding by residents of a substantial portion of their assets in foreign-currency-denominated assets- is a common feature of developing and transition economies, and therefore typical of many countries with IMF - supported adjustment programs. This paper analyzes policy issues that arise-and various monetary strategies that may be pursued- when the monetary sector is dollarized, and it considers the implications that dollarization has for the design of IMF programs.
Download or read book Dollarization and Financial Development written by Mr.Geoffrey J Bannister and published by International Monetary Fund. This book was released on 2018-09-11 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite significant strides in financial development over the past decades, financial dollarization, as reflected in elevated shares of foreign currency deposits and credit in the banking system, remains common in developing economies. We study the impact of financial dollarization, differentiating across foreign currency deposits and credit on financial depth, access and efficiency for a large sample of emerging market and developing countries over the past two decades. Panel regressions estimated using system GMM show that deposit dollarization has a negative impact on financial deepening on average. This negative impact is dampened in cases with past periods of high inflation. There is also some evidence that dollarization hampers financial efficiency. The results suggest that policy efforts to reduce dollarization can spur faster and safer financial development.
Download or read book Dollarization of Banking Financial Stability and Financial Liberalization written by Carlos Óscar Arteta and published by . This book was released on 2002 with total page 382 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Escaping the Financial Dollarization Trap The Role of Foreign Exchange Intervention written by Paul Castillo and published by International Monetary Fund. This book was released on 2024-06-21 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial dollarization is considered a source of macroeconomic instability in many emerging economies. Dollarization constrains the ability of central banks to stimulate output during economic downturns. In contrast to the conventional monetary transmission mechanism, a monetary policy loosening in a dollarized economy leads to a currency depreciation, adverse balance sheet effects, and a contraction in investment and output growth. In this paper we evaluate the role of foreign exchange reserves in facilitating macroeconomic stabilization in a financially dollarized economy. We first show empirically that foreign exchange intervention in response to capital outflows can largely reduce the volatility of output and the real exchange rate in dollarized economies. We then develop a small open economy model with foreign currency debt and balance sheets effects. Our quantitative model shows that an active foreign exchange intervention policy is sufficient for offsetting the output volatility associated with financial dollarization. These results can explain the prevalence of low macroeconomic volatility in some dollarized economies (Christiano et al., 2021) and they highlight the role of foreign exchange reserves in reducing the welfare costs of dollarization.
Download or read book Dollarization and Exchange Rate Fluctuations written by Patrick Honohan and published by . This book was released on 2007 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Although the worldwide growth in dollarization of bank deposits has recently slowed, it has already reached very high levels in dozens of countries. Building on earlier findings that allowed the main cross-country variations in the share of dollars to be explained in terms of national policies and institutions, this paper turns to analysis of short-run variations, particularly the response of dollarization to exchange rate changes, which is shown to be too small to warrant "fear of floating" by dollarized economies. But high dollarization is shown to increase the risk of depreciation and even suspension, as indicated by interest rate spreads. While specific policy is needed to deal with the risks associated with dollarization, the underlying causes of unwanted dollarization should also be tackled."
Download or read book How to De Dollarize Financial Systems in the Caucasus and Central Asia written by Mr.Sami Ben Naceur and published by International Monetary Fund. This book was released on 2015-09-23 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dollarization rates in the Caucasus and Central Asia (CCA) region are among the highest in the world, with adverse consequences for macroeconomic stability, monetary policy transmission, and financial sector development. Using dynamic panel data models, we find that foreign exchange deposits and loans in the CCA are mainly driven by volatile inflation and exchange rates, low financial depth, and asymmetric exchange rate policies biased toward depreciation. Although there is no unique formula for success, empirical studies and cross-country experiences suggest that credible monetary and exchange rate frameworks, low and stable inflation, and deep domestic financial markets are essential ingredients of any de-dollarization strategy. In implementation, policymakers need to consider proper sequencing of policies, effective communication as well as risks from potential financial disintermediation and instability, and/or capital flight.
Download or read book Dollarization of the Banking System written by Patrick Honohan and published by World Bank Publications. This book was released on 2003 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: De Nicolo, Honohan, and Ize assess the benefits and risks associated with dollarization of the banking system. The authors provide novel empirical evidence on the determinants of dollarization, its role in promoting financial development, and on whether dollarization is associated with financial instability. They find that: The credibility of macroeconomic policy and the quality of institutions are both key determinants of cross-country variations in dollarization. Dollarization is likely to promote financial deepening only in a high inflation environment. Financial instability is likely higher in dollarized economies. The authors discuss the implications of these findings for financial sector and monetary policies.
Download or read book Causes and Problems of Dollarization written by Fabio Botta and published by GRIN Verlag. This book was released on 2020-06-23 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2020 in the subject Economics - Foreign Trade Theory, Trade Policy, grade: 1,3, University of Leipzig (Institute for Economic Policy), course: Financial Development and Innovation in Developing Countries and Emerging Markets, language: English, abstract: This paper discusses the causes and problems associated with dollarization. Based on the results, it addresses the questions of how high dollarization rates can be evaluated and, in particular, whether it is advisable to opt for full dollarization (FD) or to what extent policymakers should rather aim for de-dollarization. As an introduction to the discussion, Chapter 2 will give a short illustration of the theoretical concepts of dollarization. Chapter 3 will then explain the causes of dollarization. The subsequent description of the advantages of FD in Chapter 4, which can also be cited as a reason for high rates of dollarization,3 leads directly to the problems associated with dollarization in Chapter 5. These problems arise – unless otherwise stated – both from high dollarization rates and from FD. The research up to Chapter 5 concentrates on a more theoretical level. The discussion on how to evaluate the causes and problems in Chapter 6 tries to link theoretical concepts with more general empirical analyses. Chapter 7 provides a brief conclusion of the most important findings and concludes with recommendations for future research. “Dollarization has evolved as one of the noteworthy features of globalization during the last two decades.” Although Mr. Yilmaz, the then Governor of the Central Bank of the Republic of Turkey, said this sentence at a conference on dollarization in December 2006, it remains more relevant than ever. Due to the increasing integration of the international financial system, the lifting of restrictions on capital mobility and the growing volume of trade, the debate on dollarization met with a growing interest in the 1990s. Nonetheless, today's economic journals are still filled with new publications on dollarization.
Download or read book Economic Policy in a Highly Dollarized Economy written by International Monetary Fund and published by International Monetary Fund. This book was released on 2003-09-30 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the challenges and issues facing policymakers in highly dollarized economies. Focusing on Cambodia, which achieved almost complete dollarization during 1991-95, the authors review recent developments in the literature on dollarization and examine the costs and benefits of dollarization in Cambodia, including the ensuing macroeconomic policy implications. They carry out an econometric estimation of cash foreign currency circulation in Cambodia in order to gauge the degree of dollarization. In addition to this analysis, the authors present a short description of Cambodia’s economic, financial, and structural background.
Download or read book Implementing Official Dollarization written by Mr.Luis Ignacio Jácome and published by International Monetary Fund. This book was released on 2010-04-01 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper identifies key aspects that countries willing to officially dollarize must necessarily address. Based on country experiences, it discusses the critical institutional bases that are necessary to unilaterally introduce a new legal tender, describes the relevant operational issues to smooth the transition toward the use of the new currency, and identifies key structural reforms that are necessary to favor the sustainability over time of this monetary regime. The paper is aimed at providing preliminary guidance to policy makers and practitioners adopting official dollarization. The paper does not take a position on how appropriate this monetary arrangement is. Experiences from adopting dollarization in Ecuador, El Salvador, Kosovo, Montenegro, and Timor-Leste are illustrated briefly.
Download or read book Revisiting the Concept of Dollarization written by MissNkunde Mwase and published by International Monetary Fund. This book was released on 2015-01-22 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: The economic literature has examined deposit dollarization in nominal terms, typically focusing on the ratio of foreign currency deposits to broad money. However, while private agent demand for foreign currency may remain unchanged in foreign currency terms, there could be large fluctuations in the dollarization ratio simply due to exchange rate movements. This paper proposes a new approach to measuring dollarization that removes these exchange rate effects, and demonstrates that beyond the variance of inflation and depreciation, the level of inflation and size of depreciation also matter for dollarization. While dollarization in nominal terms surged during the recent global financial crisis, there was a downward trend in real terms. Employing a set of econometric estimators, this paper investigates whether “real” dollarization during 2006–09 was associated with the crisis, and the role of initial macroeconomic conditions, quality of institutions, risk aversion, and prudential measures. We find that exchange rate appreciation and reductions in sovereign risk do moderate dollarization; but the results for global volatility have low statistical significance, perhaps because global shocks tend to preserve, to a large extent, relative attractiveness of foreign assets. Nonetheless, estimated impulse-response functions point to a large but short-lived positive impact of global volatility on dollarization, which could reflect economic agents heightened concerns about spillover effects of global uncertainty on the domestic economy.
Download or read book What is Driving Financial De Dollarization in Latin America written by Mr.Sebastian Sosa and published by International Monetary Fund. This book was released on 2011-01-01 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the last decade, a group of Latin American countries (Bolivia, Paraguay, Peru, and Uruguay) experienced a gradual, yet sustained decline in financial dollarization. This paper documents the stylized facts and uses a standard VAR approach to examine the drivers of both deposit and credit de-dollarization. It finds that the exchange rate appreciation has been a key factor explaining deposit de-dollarization. The introduction of prudential measures to create incentives to internalize the risks of dollarization (including an active management of reserve requirement differentials), the development of a capital market in local currency, and de-dollarization of deposits have all contributed to a decline in credit dollarization. Continuing efforts on these fronts, while maintaining macroeconomic stability and strong fundamentals, would help deepening de-dollarization.
Download or read book Dollarization written by Eduardo Levy Yeyati and published by MIT Press. This book was released on 2003 with total page 364 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theoretical and empirical analysis of de jure dollarization. With the persistent instability of international financial markets, emerging economies are exploring new ways to reduce exposure to capital flow volatility. Some analysts argue that financially open economies are best served by more flexible regimes, while others argue in favor of extreme exchange rate regimes that have a strong commitment to a fixed parity or dispense with an independent currency. The successful launch of the euro has made more realistic the prospect of replacing a national currency with a strong foreign one. Recent examples include the adoption of the US dollar by Ecuador and El Salvador. The introduction of a foreign currency as sole legal tender, termed full (de jure) dollarization, has been the center of much political and academic debate. This book provides a comprehensive analysis of the issues from both theoretical and empirical perspectives. The topics discussed include the role of balance sheet effects, the linkage between currency risk and country risk, the impact of dollarization on trade, financial integration and credibility, the implications of dollarization for the lender of last resort, and the institutional and political economy aspects of dollarization.
Download or read book Democratic Republic of the Congo written by International Monetary Fund. Monetary and Capital Markets Department and published by International Monetary Fund. This book was released on 2014-10-23 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Financial System Stability Assessment on the Democratic Republic of the Congo highlights that the Congolese financial sector has recovered from the crisis of 2009 but is at a crossroads. Although reforms have been initiated, the system remains shallow, highly dollarized, and characterized by balance sheet fragilities. The authorities have announced a de-dollarization process; however, greater progress on reforms to strengthen the financial system is needed to support financial deepening and economic growth. The team’s analysis suggests that the financial system remains vulnerable. Resilience to shocks is undermined by the lack of risk-based supervision, lax regulation and weak enforcement of existing regulations, low profitability, and an excessive reliance on sight deposits. Steps are also needed to improve the capacity for micro- and macroprudential supervision. The implementation of risk-based supervision for individual banks is a critical prerequisite for effective crisis prevention. Assessments of bank-specific and systemic soundness are severely handicapped by weak supervisory data and other information gaps. There are significant weaknesses in accounting and auditing practices and, even if indicators suggest high capitalization levels, a more detailed analysis suggests banks are under-provisioned, partly owing to lax definitions of nonperforming loans and provisioning rules.
Download or read book Financial Dollarization in Emerging Markets written by Lawrence Christiano and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper pushes back against two views about the effects of dollarization. First, there is a view that the dollar is a device by which rich countries provide business cycle insurance to emerging market (EME) countries. We find that the dollar is important for risk sharing, but the evidence suggests that it is primarily a device to shift business cycle risk across different people within individual EMEs and within rich countries rather than across countries. Second, there is a widespread view that dollarization raises the risk of systemic banking and other crises. Although we identify sources of fragility in some aspects of dollarization, the common view that financial dollarization is a source of fragility is over-stated. Our insurance view about financial dollarization and the lack of risks to financial stability emerges from a study of a large cross-country dataset, as well as case studies for Peru and Armenia. We develop a simple model which formalizes the insurance view, which is consistent with the key cross-country facts on interest rate differentials, deposit dollarization and exchange rate depreciations in recessions.
