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Choice of substitution currency in Russia: how to explain the dollar's dominance?

Anna Dorbec

No 15/2005, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: The analysis of external economic relations of Russia reveals a paradox: while Europe is the main trade and direct investment partner of Russia, this is far from being the case concerning its currency s role in Russia's financial activities.The dollar is much preferred by economic agents for financial operations.This paper proposes a disaggregated approach to this issue by separating the means of exchange and store of value components of the use of substitution currencies.The influence of three main factors (inertial component, real trade relations and exchange rate fluctuations) on the relative demand for the euro by Russian economic agents is tested for the period 1999-2004.Finally we suggest a theoretical interpretation of the results based on the conventions theory approach. Keywords: dollarisation, euroisation, transition, Russia, currency substitution, asset substitution, network externalities, hysteresis, conventions JEL classification: E52, E41, F31, F41,G20

JEL-codes: E52 E41 F31 F41 G20 (search for similar items in EconPapers)
Date: 2005-11-01
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Published in Published in Growth Resumption in the CIS Countries, ed. by Oleh Havrylyshyn and Lucio Vinhas de Souza, Springer (2006), pp. 40-72

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