Currency Substitution in Egypt and the Yemen Arab Republic: A Comparative Quantitative Analysis

Mohamed El-Erian
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Mohamed El-Erian: International Monetary Fund

IMF Staff Papers, 1988, vol. 35, issue 1, 85-103

Abstract: An empirical analysis of the determinants of currency substitution in Egypt and the Yemen Arab Republic is provided for the period 1980-86. During this period, residents exhibited a marked preference to substitute foreign money balances for domestic balances, as indicated by their holdings of foreign currency deposits. This preference reflects changes in the expected relative returns to, and liquidity of, holdings of foreign balances. Such changes, in turn, are shown to result from intensified financial and economic imbalances, increased political uncertainties, and changes in institutional factors that affect domestic channels for acquiring and using foreign exchange resources.

Date: 1988
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