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Dollarization of the Banking System: Good or Bad?

Author/Editor: De Nicoló, Gianni | Honohan, Patrick | Ize, Alain
Authorized for Distribution: July 1, 2003
Electronic Access: Free Full Text (PDF file size is 1,603KB)
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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: This paper assesses the benefits and risks associated with dollarization of the banking system. We provide novel empirical evidence on the determinants of dollarization, its role in promoting financial development, and on whether dollarization is associated with financial instability. We find that: (a) the credibility of macroeconomic policy and the quality of institutions are both key determinants of cross-country variations in dollarization; (b) dollarization is likely to promote financial deepening only in a high inflation environment; and (c) financial instability is likely higher in dollarized economies. The implications of these findings for financial sector and monetary policies are discussed.
 
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Series: Working Paper No. 03/146
Subject(s): Dollarization | Banking systems | Financial sector
Author's keyword(s): Dollarization | Financial Deepening | Financial Instability
 
English  
    Published:   July 1, 2003        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA1462003   Pages:   43
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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