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Financial De-Dollarization: Is It for Real?

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  • Alain Ize
  • Eduardo Levy Yeyati

Abstract

De facto (unofficial) dollarization, defined as the holding by residents of assets and liabilities denominated in a foreign currency, is a policy concern in an increasing number of developing economies. This paper addresses the dollarization debate from this perspective, with the goal of setting the stage for a more detailed and focused discussion of whether de-dollarization should be a policy objective and, if so, how best to pursue this objective. We review existing theories of de facto dollarization and the extent to which they are supported by the available evidence, presents the main strategies for reform, and proposes a list of policy recommendations.

Suggested Citation

  • Alain Ize & Eduardo Levy Yeyati, 2005. "Financial De-Dollarization: Is It for Real?," Business School Working Papers isitforreal, Universidad Torcuato Di Tella.
    • Handle: RePEc:udt:wpbsdt:isitforreal
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    Cited by:

    1. Pepić Marina & Marinković Srđan & Radović Ognjen & Malović Marko, 2015. "Determinants of Currency Substitution in Southeast European Countries," Economic Themes, Sciendo, vol. 53(2), pages 162-184, June.
    2. Pelin Berkmen & Eduardo A. Cavallo, 2007. "Exchange Rate Policy and Liability Dollarization: An Empirical Study," IMF Working Papers 2007/033, International Monetary Fund.
    3. Ms. Nombulelo Braiton, 2011. "Dollarization in Cambodia: Causes and Policy Implications," IMF Working Papers 2011/049, International Monetary Fund.
    4. Isabella Moder, 2023. "The transmission of euro area monetary policy to financially euroized countries," Economics and Politics, Wiley Blackwell, vol. 35(3), pages 718-751, November.
    5. Mariann Endrész & Gyõzõ Gyöngyösi & Péter Harasztosi, 2012. "Currency mismatch and the sub-prime crisis: firm-level stylised facts from Hungary," MNB Working Papers 2012/8, Magyar Nemzeti Bank (Central Bank of Hungary).
    6. Kazeem B. Ajide & Ibrahim D. Raheem & Simplice A. Asongu, 2018. "Dollarization and the “Unbundling†of Globalization in sub-Saharan Africa," Research Africa Network Working Papers 18/034, Research Africa Network (RAN).
    7. International Monetary Fund, 2014. "Paraguay: Selected Issues," IMF Staff Country Reports 2014/061, International Monetary Fund.
    8. Hail Park & Jong Chil Son, 2022. "Dollarization, inflation and foreign exchange markets: A cross‐country analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 2724-2736, July.
    9. Carlos E. León Rincón & Alejandro Revéiz Herault, 2008. "La dolarización financiera: experiencia internacional y perspectivas para Colombia," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 10(18), pages 313-341, January-J.
    10. Raheem, Ibrahim Dolapo & Asongu, Simplice A., 2018. "Extending the determinants of dollarization in sub-Saharan Africa: The role of easy access to foreign exchange earnings," Research in International Business and Finance, Elsevier, vol. 45(C), pages 106-120.
    11. Reza Y. Siregar & Narith Chan, 2014. "Factors behind Foreign Currency Holding by Household in Cambodia," CAMA Working Papers 2014-58, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    12. Branko Uroševic & Ivana Rajkovic, 2016. "Dollarization of Deposits in the Short and Long Run: Evidence from CESE Countries," CESifo Working Paper Series 5745, CESifo.
    13. Arrieta Vidal, Johar & Florián Hoyle, David & López Vargas, Kristian & Morales Vásquez, Valeria, 2022. "Policies for transactional de-dollarization: A laboratory study," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 31-54.
    14. Miss Nkunde Mwase & Mr. Francis Y Kumah, 2015. "Revisiting the Concept of Dollarization: The Global Financial Crisis and Dollarization in Low-Income Countries," IMF Working Papers 2015/012, International Monetary Fund.
    15. Ajide, Kazeem B. & Raheem, Ibrahim D. & Asongu, Simplice A., 2019. "Dollarization and the “unbundling” of globalization in sub-Saharan Africa," Research in International Business and Finance, Elsevier, vol. 47(C), pages 398-409.
    16. N. R. Ramírez-Rondán, 2019. "Balance sheet and currency mismatch: evidence for Peruvian firms," Empirical Economics, Springer, vol. 57(2), pages 449-473, August.
    17. Mr. Geoffrey J Bannister & Mr. Jarkko Turunen & Malin Gardberg, 2018. "Dollarization and Financial Development," IMF Working Papers 2018/200, International Monetary Fund.
    18. Ms. Mercedes Garcia-Escribano & Mr. Sebastian Sosa, 2011. "What is Driving Financial De-Dollarization in Latin America?," IMF Working Papers 2011/010, International Monetary Fund.
    19. Barry Eichengreen, 2010. "The Breakup of the Euro Area," NBER Chapters, in: Europe and the Euro, pages 11-51, National Bureau of Economic Research, Inc.
    20. Edmar L. Bacha & Márcio Holland & Fernando M. Gonçalves, 2007. "Is Brazil Different? Risk, Dollarization, And Interest In Emerging Markets," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 028, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    21. García-Escribano, Mercedes, 2011. "Factores que impulsan la desdolarización en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 21, pages 23-40.
    22. Petr Vanek & Petr Korab, 2018. "Determinants of Deposit and Credit Euroization in Eastern Europe: A Bayesian Model Averaging Evidence," MENDELU Working Papers in Business and Economics 2018-73, Mendel University in Brno, Faculty of Business and Economics.
    23. Carranza, Luis & Galdon-Sanchez, Jose E. & Gomez-Biscarri, Javier, 2011. "The relationship between investment and large exchange rate depreciations in dollarized economies," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1265-1279.
    24. Bednarik, Radek, 2007. "Loan Dollarization in V4 Countries," MPRA Paper 14695, University Library of Munich, Germany.
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