## Currency Substitution in Developing Countries: An Introduction

_IMF Working Papers, May 1, 1992_

## Source details

**Canonical URL:** [Currency Substitution in Developing Countries: An Introduction](https://www.imf.org/en/publications/wp/issues/2016/12/30/currency-substitution-in-developing-countries-an-introduction-790)

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## Bibliographic details
- Authors: Guillermo Calvo, Carlos A. Végh Gramont
- Published: May 1, 1992
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451845884.001

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### Summary
- This paper reviews the main policy and analytical issues related to currency substitution in developing countries.
- The paper discusses:
  - whether currency substitution should be encouraged or not;
  - how the presence of currency substitution affects the choice of nominal anchors in inflation stabilization programs;
  - the effects of changes in the rate of growth of the money supply on the real exchange rate;
  - the interaction between inflationary finance and currency substitution;
  - issues related to the empirical verification of the currency substitution hypothesis.

### Major themes and analytical issues
- Currency substitution: examination of policy rationale for encouraging or discouraging currency substitution in developing countries.
- Nominal anchors and stabilization: analysis of how currency substitution modifies the choice and effectiveness of nominal anchors in inflation stabilization programs.
- Money supply growth and real exchange rate: exploration of the effects of changes in the rate of growth of the money supply on the real exchange rate.
- Inflationary finance interaction: discussion of the interaction between inflationary finance and currency substitution.
- Empirical verification: issues related to testing the currency substitution (substitution) hypothesis empirically.

### Subjects and keywords
- Subject: Currencies, Demand for money, Dollarization, Foreign exchange, Inflation, Monetary policy, Money, Prices, Real exchange rates
- Keywords: Currencies, currency substitutability, currency substitution, currency-substitution problem, Demand for money, Dollarization, dollarization process, domestic money, foreign currency, Inflation, inflation rate, medium of exchange, nominal interest rate, Real exchange rates, substitution hypothesis, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/currency-substitution-in-developing-countries-an-introduction-790_