Dollarization and Exchange Rate Fluctuations
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...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2007/03/7459553/dollarization-exchange-rate-fluctuations http://hdl.handle.net/10986/7252 |
| Summary: | 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. |
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