Currency Substitution: The Recent Experience of Bolivia

Author/Editor:

Benedict J. Clements ; Gerd Schwartz

Publication Date:

August 1, 1992

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:

This paper analyzes the determinants of currency substitution in Bolivia in the period following the 1984/85 hyperinflation. We find that expected exchange rate depreciation and actual interest rate differentials between boliviano and dollar deposits in the Bolivian banking system are statistically significant determinants of the degree of currency substitution. However, the explanatory power of these variables is low compared to variables that measure the degree of inertia in the currency substitution process. Thus, further reductions in inflation or higher interest rates for boliviano bank deposits are likely to have but a small effect on dollarization.

Series:

Working Paper No. 1992/065

Subject:

Bank deposits Currencies Dollarization Exchange rates Financial services Foreign exchange Inflation Monetary policy Money Prices

English

Publication Date:

August 1, 1992

ISBN/ISSN:

9781451848618/1018-5941

Stock No:

WPIEA0651992

Pages:

32

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