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Foreign Currency Deposits: Implications for Macroeconomic Policies

Author

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  • Mr. Andréas Georgiou

Abstract

This paper discusses the relationship between foreign currency deposits and money, and it shows that the indexation of part of the nominal money supply to the exchange rate, as a result of the presence of foreign currency deposits, will increase the inflationary effects of monetary disequilibria under a floating exchange rate system and will reduce the effect of a devaluation of a usually fixed exchange rate. When a real exchange rate rule is followed, the presence of foreign currency deposits implies that there is less of a tradeoff between the rate of nominal depreciation/inflation and the level of the real exchange rate. The paper shows how certain aspects of financial programming may be affected by the presence of these deposits.

Suggested Citation

  • Mr. Andréas Georgiou, 1991. "Foreign Currency Deposits: Implications for Macroeconomic Policies," IMF Working Papers 1991/108, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1991/108
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    Cited by:

    1. Sylviane Guillaumont Jeanneney, 1994. "La politique économique en présence de substitution de monnaies," Revue Économique, Programme National Persée, vol. 45(3), pages 349-368.

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