Dollarization in Transition Economies : Evidence and Policy Implications

Author/Editor:

Carlos A. Végh Gramont ; Ratna Sahay

Publication Date:

September 1, 1995

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:

After most restrictions on foreign currency holdings were relaxed in the early 1990s, foreign currency deposits in transition economies have been increasing rapidly. This paper takes a first look at the evidence on dollarization for 15 transition economies, and then discusses some key conceptual and policy implications. Depending on the institutional constraints, foreign currency deposits as a proportion of broad money reached a peak of between 30 and 60 percent in 1992-93. Unlike what has been observed in Latin America, however, dollarization has fallen substantially in the aftermath of successful stabilization plans in Estonia, Lithuania, Mongolia, and Poland. Since foreign currency deposits reflect mainly a portfolio choice, the fall in dollarization can be primarily attributed to higher real returns on domestic-currency assets, as a result of lower inflation and more market-determined interest rates.

Series:

Working Paper No. 95/96

English

Publication Date:

September 1, 1995

ISBN/ISSN:

9781451950083/1018-5941

Stock No:

WPIEA0961995

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

34

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