Dollarization and Exchange Rate Fluctuations

Patrick Honohan

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: 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.

Date: 2007-01-17
New Economics Papers: this item is included in nep-cba and nep-ifn
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Related works:
Working Paper: Dollarization and Exchange Rate Fluctuations (2007)
Working Paper: Dollarization and exchange rate fluctuations (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:iis:dispap:iiisdp201

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