Dollarization and Financial Development
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Summary:
Despite significant strides in financial development over the past decades, financial dollarization, as reflected in elevated shares of foreign currency deposits and credit in the banking system, remains common in developing economies. We study the impact of financial dollarization, differentiating across foreign currency deposits and credit on financial depth, access and efficiency for a large sample of emerging market and developing countries over the past two decades. Panel regressions estimated using system GMM show that deposit dollarization has a negative impact on financial deepening on average. This negative impact is dampened in cases with past periods of high inflation. There is also some evidence that dollarization hampers financial efficiency. The results suggest that policy efforts to reduce dollarization can spur faster and safer financial development.
Series:
Working Paper No. 2018/200
Subject:
Bank deposits Credit Dollarization Financial markets Financial sector development Financial services Inflation Monetary policy Money Prices
English
Publication Date:
September 11, 2018
ISBN/ISSN:
9781484373361/1018-5941
Stock No:
WPIEA2018200
Pages:
39
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