Peru: Drivers of De-dollarization
IMF Working Papers, July 1, 2010
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- Peru: Drivers of De-dollarization
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Bibliographic details
- Authors: Mercedes Garcia-Escribano
- Published: July 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455201808.001
Summary and key findings
- Peru has pursued a market-driven financial de-dollarization during the last decade.
- Dollarization of credit and deposit of commercial banks—across all sectors and maturities—has declined.
- Larger declines occurred for commercial credit and time and saving deposits.
- The paper’s analysis confirms that de-dollarization has been driven by:
- macroeconomic stability;
- introduction of prudential policies to better reflect currency risk (such as the management of reserve requirements);
- development of the capital market in soles.
Drivers of de-dollarization (analysis)
- Macroeconomic stability:
- Identified as a primary driver enabling reduced reliance on foreign currency in the financial system.
- Prudential policies:
- Introduction of measures that better reflect currency risk, including management of reserve requirements, contributed to de-dollarization.
- Capital market development in soles:
- Development of domestic-currency capital markets supported substitution away from dollar-denominated instruments.
Policy recommendations and further steps
- Given consolidated macroeconomic stability, greater exchange rate flexibility could foster further de-dollarization.
- Additional prudential measures could further discourage banks’ lending and funding in foreign currency.
- Further capital market development in domestic currency (soles) would help overall financial de-dollarization.
- Further de-dollarization efforts could focus on the three fronts identified: macroeconomic stability, prudential policy, and capital market development.