How to De-Dollarize Financial Systems in the Caucasus and Central Asia?

Author/Editor:

Sami Ben Naceur ; Amr Hosny ; Gregory Hadjian

Publication Date:

September 23, 2015

Electronic Access:

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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:

Dollarization rates in the Caucasus and Central Asia (CCA) region are among the highest in the world, with adverse consequences for macroeconomic stability, monetary policy transmission, and financial sector development. Using dynamic panel data models, we find that foreign exchange deposits and loans in the CCA are mainly driven by volatile inflation and exchange rates, low financial depth, and asymmetric exchange rate policies biased toward depreciation. Although there is no unique formula for success, empirical studies and cross-country experiences suggest that credible monetary and exchange rate frameworks, low and stable inflation, and deep domestic financial markets are essential ingredients of any de-dollarization strategy. In implementation, policymakers need to consider proper sequencing of policies, effective communication as well as risks from potential financial disintermediation and instability, and/or capital flight.

Series:

Working Paper No. 15/203

Subject:

English

Publication Date:

September 23, 2015

ISBN/ISSN:

9781513507279/1018-5941

Stock No:

WPIEA2015203

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

21

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