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How to De-Dollarize Financial Systems in the Caucasus and Central Asia?

Sami Ben Naceur (), Amr Hosny () and Gregory Hadjian

No 15/203, IMF Working Papers from International Monetary Fund

Abstract: Dollarization rates in the Caucasus and Central Asia (CCA) region are among the highest in the world, with adverse consequences for macroeconomic stability, monetary policy transmission, and financial sector development. Using dynamic panel data models, we find that foreign exchange deposits and loans in the CCA are mainly driven by volatile inflation and exchange rates, low financial depth, and asymmetric exchange rate policies biased toward depreciation. Although there is no unique formula for success, empirical studies and cross-country experiences suggest that credible monetary and exchange rate frameworks, low and stable inflation, and deep domestic financial markets are essential ingredients of any de-dollarization strategy. In implementation, policymakers need to consider proper sequencing of policies, effective communication as well as risks from potential financial disintermediation and instability, and/or capital flight.

Keywords: Uzbekistan; Slovenia; Tajikistan; Turkey; Ukraine; Macedonia, former Yugoslav Republic of; Belarus; Bulgaria; Central Asia; Croatia; Azerbaijan; Albania; Armenia; Georgia; Estonia; Lithuania; Moldova; Kazakhstan; Kosovo; Kyrgyz Republic; Latvia; Romania; Serbia; Slovak Republic; financial dollarization, financial development, de-dollarization, exchange, exchange rate, currency, inflation, deposits, General, (search for similar items in EconPapers)
Pages: 21
Date: 2015-09-23
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-mac and nep-mon
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Journal Article: How to de-dollarize financial systems in the Caucasus and Central Asia? (2019) Downloads
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