What is Driving Financial De-Dollarization in Latin America?

Author/Editor:

Mercedes Garcia-Escribano ; Sebastian Sosa

Publication Date:

January 1, 2011

Electronic Access:

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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:

In the last decade, a group of Latin American countries (Bolivia, Paraguay, Peru, and Uruguay) experienced a gradual, yet sustained decline in financial dollarization. This paper documents the stylized facts and uses a standard VAR approach to examine the drivers of both deposit and credit de-dollarization. It finds that the exchange rate appreciation has been a key factor explaining deposit de-dollarization. The introduction of prudential measures to create incentives to internalize the risks of dollarization (including an active management of reserve requirement differentials), the development of a capital market in local currency, and de-dollarization of deposits have all contributed to a decline in credit dollarization. Continuing efforts on these fronts, while maintaining macroeconomic stability and strong fundamentals, would help deepening de-dollarization.

Series:

Working Paper No. 11/10

Subject:

English

Publication Date:

January 1, 2011

ISBN/ISSN:

9781455211883/1018-5941

Stock No:

WPIEA2011010

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

23

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