Money and Credit Under Currency Substitution

ByCarlos A. Rodriguez

November 1, 1992

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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 examines the effects on the supply of money and credit of a repatriation of foreign assets in an economy subject to currency substitution. In the absence of 100 percent reserve requirements, such a change in the location of deposits, which is not compensated by an increase in money demand, induces a credit boom that works itself out through a transitory current account deficit and real currency appreciation. These results are illustrated with data from the recent experience in Argentina and Peru where local banks have been authorized to capture dollar deposits from residents.

Subject: Balance of payments, Capital inflows, Credit, Currencies, Demand for money, Monetary policy, Money, Reserve requirements

Keywords: Capital inflows, central bank, Credit, Currencies, Demand for money, dollar, dollar account, dollar cost of living, dollar deposit, dollar value, foreign currency, Global, Reserve requirements, value of the CPI, WP

Pages:
18
Volume:
1992
DOI:
---
Issue:
099
Series:
Working Paper No. 1992/099
Stock No:
WPIEA0991992
ISBN:
9781451852196
ISSN:
1018-5941

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Notes

Examines the effects on the supply of money and credit of a repatriation of foreign assets in an economy subject to currency substitution. Also published in Staff Papers, Vol. 40, No. 2, June 1993.

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