Taming Financial Dollarization: Determinants and Effective Policies – The Case of Uruguay

Jose P Mauricio Vargas and Jesus Sanchez

No 2023/244, IMF Working Papers from International Monetary Fund

Abstract: With some of the most significant levels of financial dollarization in the Western Hemisphere, Uruguay is characterized by extensive dollarization in both deposits and loans. While traditional factors like high inflation and substantial devaluations have been associated with such outcome, the enduring nature of dollarization in Uruguay also underscores the importance of structural elements. In formulating a holistic strategy to reduce dollarization, not only should there be an enhancement of the monetary policy framework aimed at maintaining low, stable inflation, but it should also consider the calibration of prudential policies such as currency-differentiated reserve requirements and foreign-currency credit repos.

Keywords: Dollarization; Prudential Policies; Monetary Policy; Uruguay; Peru.; deposit dollarization; dollarization trend; credit repo; financial dollarization; dollarization level; Inflation; Reserve requirements; Exchange rates; Currencies; Global; South America; Caribbean; Western Hemisphere (search for similar items in EconPapers)
Pages: 36
Date: 2023-11-24
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mon
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