## Currency Substitution: The Recent Experience of Bolivia

_IMF Working Papers, August 1, 1992_

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## Bibliographic details
- Authors: Benedict J. Clements, Gerd Schwartz
- Published: August 1, 1992
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451848618.001

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### Summary and main finding
- This paper analyzes the determinants of currency substitution in Bolivia in the period following the 1984/85 hyperinflation.
- Expected exchange rate depreciation and actual interest rate differentials between boliviano and dollar deposits in the Bolivian banking system are statistically significant determinants of the degree of currency substitution.
- The explanatory power of these variables is low compared to variables that measure the degree of inertia in the currency substitution process.
- Thus, further reductions in inflation or higher interest rates for boliviano bank deposits are likely to have but a small effect on dollarization.

### Determinants and analytical emphasis
- Statistically significant determinants identified:
  - Expected exchange rate depreciation
  - Actual interest rate differentials between boliviano and dollar deposits in the Bolivian banking system
- Dominant explanatory factor:
  - Variables measuring the degree of inertia in the currency substitution (dollarization) process have greater explanatory power than the two statistically significant variables above.

### Policy implications and projection
- Policy actions evaluated:
  - Further reductions in inflation
  - Higher interest rates for boliviano bank deposits
- Likely outcome:
  - Both measures are likely to have only a small effect on reducing dollarization given the strong inertia observed in the currency substitution process.

### Publication and metadata
- Authors: Benedict J. Clements, Gerd Schwartz
- Date: August 1, 1992
- Pages: 32
- Volume: 1992
- Issue: 065
- Series: Working Paper No. 1992/065
- DOI: https://doi.org/10.5089/9781451848618.001
- Stock No: WPIEA0651992
- ISBN: 9781451848618
- ISSN: 1018-5941

### Subjects and keywords
- Subject: Bank deposits, Currencies, Dollarization, Exchange rates, Financial services, Foreign exchange, Inflation, Monetary policy, Money, Prices
- Keywords: Bank deposits, Bolivia, Bolivia foreign currency deposit, Currencies, dollar, dollar deposit, dollar-denominated asset, Dollarization, dollarization process, exchange rate, Exchange rates, foreign currency, Inflation, money balance, quasi money deposit, quasi-money deposit, U.S. dollar, WP, yield

*Currency Substitution: The Recent Experience of Bolivia — Benedict J. Clements, Gerd Schwartz; IMF Working Papers; August 1, 1992.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/currency-substitution-the-recent-experience-of-bolivia-815_