Euroization Drivers and Effective Policy Response: An Application to the case of Albania

By Guido della Valle, Vasilika Kota, Romain M Veyrune, Ezequiel Cabezon, Shaoyu Guo

January 25, 2018

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Format: Chicago

Guido della Valle, Vasilika Kota, Romain M Veyrune, Ezequiel Cabezon, and Shaoyu Guo. Euroization Drivers and Effective Policy Response: An Application to the case of Albania, (USA: International Monetary Fund, 2018) accessed September 18, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper proposes a methodology to develop empirically based and theoretically consistent deeuroization policies. It is derived from the experience of Albania. The paper is the first attempt to provide an empirical measure of the optimal level of euroization. The results indicate that euroization is trending above the estimated measure in Albania, calling for deeuroization policies. In the long term, deeuroization requires maintaining the commitment to low and stable inflation in a context of greater exchange rate flexibility to encourage saving in local currency. In the short term, policies that mitigate the financial stability risk due to euroization contribute to deeuroization inasmuch as they make banking intermediation in euro less financially attractive to the public.

Subject: Bank deposits, Banking, Currencies, Exchange rate risk, Exchange rates, External debt, Financial regulation and supervision, Financial services, Foreign exchange, Money

Keywords: Bank deposits, Banknotes in circulation, Currencies, Dollarization, Euroization, Euroization trend, Europe, Exchange rate risk, Exchange rate volatility, Exchange rates, Financial asset, Financial stability, Foreign currency intermediation, Foreign currency loan, Foreign currency loans vis-à-vis, Foreign currency reserve, Interest rate, Loan euroization, Loans vis-à-vis, Opportunity cost, Reserve requirement, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/021
Stock No:

WPIEA2018021
ISBN:

9781484338728
ISSN:

1018-5941

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