Dollarization and Financial Development

Author/Editor:

Geoffrey J Bannister ; Jarkko Turunen ; Malin Gardberg

Publication Date:

September 11, 2018

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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. 18/200

Subject:

English

Publication Date:

September 11, 2018

ISBN/ISSN:

9781484373361/1018-5941

Stock No:

WPIEA2018200

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

39

Please address any questions about this title to publications@imf.org