Dollarization and exchange rate fluctuations

Patrick Honohan

No 4172, Policy Research Working Paper Series from The World Bank

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.

Keywords: Economic Theory&Research; Banks&Banking Reform; Macroeconomic Management; Fiscal&Monetary Policy; Financial Economics (search for similar items in EconPapers)
Date: 2007-03-01
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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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:wbk:wbrwps:4172

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