Dedollarization

IMF Working Papers, August 1, 2010

Source details

This paper provides a summary of the key policies that encourage dedollarization.
Focus: cases in which the authorities’ intention is to gain greater control of monetary policy.
Approach: draws on the experiences of countries that have successfully dedollarized.
Novelty: unlike previous work on the subject, this paper examines both macroeconomic stabilization policies and microeconomic measures, such as prudential regulation of the financial system.
Data: this study is the first attempt to make extensive use of the foreign exchange regulation data reported in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions.
Main conclusion: durable dedollarization depends on a credible disinflation plan and specific microeconomic measures.

Durable dedollarization requires a credible disinflation plan.
Microeconomic measures (including prudential regulation of the financial system) are important complements to macroeconomic stabilization policies.
Empirical evidence is drawn from countries that have successfully dedollarized and from foreign exchange regulation data.

Combine credible disinflation strategies with targeted microeconomic measures to reduce reliance on foreign currency.
Use prudential regulation of the financial system to support currency substitution towards the domestic currency.
Align macroeconomic stabilization policies with microprudential tools to sustain dedollarization outcomes.

Uses foreign exchange regulation data from the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions.
Examines both macroeconomic stabilization policies and microeconomic measures.
Focused on intentional dedollarization efforts by authorities.