Dollarization and Financial Development
IMF Working Papers, September 11, 2018
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- Dollarization and Financial Development
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Bibliographic details
- Authors: Geoffrey J Bannister, Jarkko Turunen, Malin Gardberg
- Published: September 11, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484373361.001
Overview
- Focus: Impact of financial dollarization—differentiating foreign currency deposits and foreign currency credit—on financial depth, access, and efficiency.
- Scope: Large sample of emerging market and developing countries over the past two decades.
- Core conclusion: Deposit dollarization has a negative impact on financial deepening on average; dollarization also shows some evidence of hampering financial efficiency. The negative impact of deposit dollarization is dampened in cases with past periods of high inflation.
- Policy thrust: Policy efforts to reduce dollarization can spur faster and safer financial development.
Methods
- Empirical approach: Panel regressions estimated using system GMM.
- Key differentiation: Separate analysis of foreign currency deposits versus foreign currency credit.
Key findings
- Deposit dollarization:
- Has a negative impact on financial deepening on average.
- The negative impact is dampened in cases with past periods of high inflation.
- Dollarization and efficiency:
- There is some evidence that dollarization hampers financial efficiency.
- Overall implication:
- Reducing dollarization is associated with prospects for faster and safer financial development.
Policy recommendations
- Pursue policies aimed at reducing financial dollarization to support stronger financial deepening and improve financial safety.
- Consider the role of inflation history: where past high inflation exists, the adverse effects of deposit dollarization on deepening are less severe—policy design should account for inflation experience.
Subjects and keywords (as listed)
- Subjects: Bank deposits, Credit, Dollarization, Financial markets, Financial sector development, Financial services, Inflation, Monetary policy, Money, Prices
- Keywords: Bank deposits, Credit, credit dollarization, deposit dollarization, developing economies, dollarization, dollarization determinant, dollarization variable, Eastern Europe, financial deepening, financial development, financial inclusion, Financial sector development, impact of dollarization, Inflation, WP
Dollarization and Financial Development; Geoffrey J Bannister, Jarkko Turunen, Malin Gardberg; September 11, 2018.
Content in this bundle
- Dollarization and Financial Development, WP/18/200, September 2018