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Is there a link between dollarization and banking crises?

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  • Adam Honig

    (Department of Economics, Amherst College, USA)

Abstract

I estimate a multivariate probit model to identify key variables that are predictive of banking crises. To add to the literature on this subject, I focus on the role played by unofficial dollarization of domestic banking systems. Unofficial dollarization is a source of vulnerability for emerging markets as large depreciations render both domestic firms and banks unable to pay dollar-denominated debt. Surprisingly, I find only weak evidence that unofficial dollarization affects the probability of a banking crisis. This finding casts doubt on the widely held belief that liability dollarization is a significant source of risk for emerging markets and developing nations, although there are still reasons to believe that dollarization remains a significant source of risk. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • Adam Honig, 2006. "Is there a link between dollarization and banking crises?," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(8), pages 1123-1135.
    • Handle: RePEc:wly:jintdv:v:18:y:2006:i:8:p:1123-1135
    DOI: 10.1002/jid.1285
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    References listed on IDEAS

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    1. Lenno Uuskula & Peeter Luikmel & Jana Kask, 2005. "Critical Levels of Debt?," Bank of Estonia Working Papers 2005-3, Bank of Estonia, revised 10 Oct 2005.
    2. Joseph Joyce, 2011. "Financial Globalization and Banking Crises in Emerging Markets," Open Economies Review, Springer, vol. 22(5), pages 875-895, November.

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