Determinants of Foreign Currency Borrowing in the New Member States of the EU

By Christoph B. Rosenberg, Marcel Tirpák

July 1, 2008

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Christoph B. Rosenberg, and Marcel Tirpák. Determinants of Foreign Currency Borrowing in the New Member States of the EU, (USA: International Monetary Fund, 2008) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper investigates the determinants of foreign currency borrowing by the private sector in the new member states of the European Union. We find that striking differences in patterns of foreign currency borrowing between countries are explained by the loan-to-deposit ratios, openness, and the interest rate differential. Joining the EU appears to have played an important role, by providing direct access to foreign funding, offering hedging opportunities through greater openness, lending credibility to exchange rate regimes, and raising expectations of imminent euro adoption. The empirical evidence suggests that regulatory policies to slow foreign currency borrowing have had only limited success.

Subject: Currencies, Dollarization, Exchange rates, External debt, Foreign exchange

Keywords: Exchange rate, Interest rate, Loan, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/173
Stock No:

WPIEA2008173
ISBN:

9781451870312
ISSN:

1018-5941

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