## How to De-Dollarize Financial Systems in the Caucasus and Central Asia?

_IMF Working Papers, September 23, 2015_

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## Bibliographic details
- Authors: Amr Hosny, Gregory Hadjian
- Published: September 23, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513507279.001

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### Summary and central findings
- Dollarization rates in the Caucasus and Central Asia (CCA) region are among the highest in the world, with adverse consequences for macroeconomic stability, monetary policy transmission, and financial sector development.
- Using dynamic panel data models, the authors find that foreign exchange deposits and loans in the CCA are mainly driven by:
  - volatile inflation and exchange rates;
  - low financial depth;
  - asymmetric exchange rate policies biased toward depreciation.
- There is no unique formula for success, but empirical studies and cross-country experiences suggest the following essential ingredients of any de-dollarization strategy:
  - credible monetary and exchange rate frameworks;
  - low and stable inflation;
  - deep domestic financial markets.

### Policy implications and implementation considerations
- Policymakers need to consider:
  - proper sequencing of policies;
  - effective communication;
  - risks from potential financial disintermediation and instability, and/or capital flight.
- De-dollarization strategies should be embedded in broader macroeconomic and financial development reforms, given the drivers identified (inflation volatility, exchange rate behavior, and shallow domestic markets).

### Subjects and keywords
- Subject: Currencies, Dollarization, Exchange rate policy, Exchange rates, Foreign exchange, Monetary policy, Money
- Keywords: CCA country, Central Asia, Central Asia and the Caucasus, Currencies, de-dollarization, De-dollarization policy, deposit dollarization, Dollarization, dollarization level, Europe, exchange rate, Exchange rate policy, Exchange rates, financial development, financial dollarization, loan, loan dollarization, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/how-to-de-dollarize-financial-systems-in-the-caucasus-and-central-asia-43299_