What is Driving Financial De-Dollarization in Latin America?
IMF Working Papers, January 1, 2011
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- What is Driving Financial De-Dollarization in Latin America?
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Bibliographic details
- Authors: Mercedes Garcia-Escribano, Sebastian Sosa
- Published: January 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455211883.001
Overview
- Authors: Mercedes Garcia-Escribano, Sebastian Sosa
- Publication date: January 1, 2011
- Type: IMF Working Paper (Working Paper No. 2011/010, Issue: 010)
- Core focus: Documents stylized facts and uses a standard VAR approach to examine the drivers of deposit and credit de-dollarization in a group of Latin American countries (Bolivia, Paraguay, Peru, and Uruguay).
Key findings
- In the last decade, Bolivia, Paraguay, Peru, and Uruguay experienced a gradual, yet sustained decline in financial dollarization.
- Exchange rate appreciation has been a key factor explaining deposit de-dollarization.
- The following factors contributed to a decline in credit dollarization:
- Introduction of prudential measures to create incentives to internalize the risks of dollarization (including an active management of reserve requirement differentials).
- Development of a capital market in local currency.
- De-dollarization of deposits.
- Continuing efforts on these fronts, while maintaining macroeconomic stability and strong fundamentals, would help deepening de-dollarization.
Drivers analyzed (methodology)
- Empirical approach: standard VAR approach.
- Targets of analysis: deposit dollarization and credit dollarization.
- Countries studied: Bolivia, Paraguay, Peru, and Uruguay.
Policy implications and recommendations
- Maintain macroeconomic stability and strong fundamentals to support de-dollarization.
- Pursue prudential measures that internalize the risks of dollarization (examples noted: active management of reserve requirement differentials).
- Support the development of local-currency capital markets.
- Promote deposit de-dollarization as a channel to reduce credit dollarization.
Content in this bundle
- 1. De-dollarization 200110