## Dollarization and Financial Development

_IMF Working Papers, September 11, 2018_

## Source details

**Canonical URL:** [Dollarization and Financial Development](https://www.imf.org/en/publications/wp/issues/2018/09/11/dollarization-and-financial-development-46164)

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## Bibliographic details
- Authors: Geoffrey J Bannister, Jarkko Turunen, Malin Gardberg
- Published: September 11, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484373361.001

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### Overview
- Focus: Impact of financial dollarization—differentiating foreign currency deposits and foreign currency credit—on financial depth, access, and efficiency.
- Scope: Large sample of emerging market and developing countries over the past two decades.
- Core conclusion: Deposit dollarization has a negative impact on financial deepening on average; dollarization also shows some evidence of hampering financial efficiency. The negative impact of deposit dollarization is dampened in cases with past periods of high inflation.
- Policy thrust: Policy efforts to reduce dollarization can spur faster and safer financial development.

### Methods
- Empirical approach: Panel regressions estimated using system GMM.
- Key differentiation: Separate analysis of foreign currency deposits versus foreign currency credit.

### Key findings
- Deposit dollarization:
  - Has a negative impact on financial deepening on average.
  - The negative impact is dampened in cases with past periods of high inflation.
- Dollarization and efficiency:
  - There is some evidence that dollarization hampers financial efficiency.
- Overall implication:
  - Reducing dollarization is associated with prospects for faster and safer financial development.

### Policy recommendations
- Pursue policies aimed at reducing financial dollarization to support stronger financial deepening and improve financial safety.
- Consider the role of inflation history: where past high inflation exists, the adverse effects of deposit dollarization on deepening are less severe—policy design should account for inflation experience.

### Subjects and keywords (as listed)
- Subjects: Bank deposits, Credit, Dollarization, Financial markets, Financial sector development, Financial services, Inflation, Monetary policy, Money, Prices
- Keywords: Bank deposits, Credit, credit dollarization, deposit dollarization, developing economies, dollarization, dollarization determinant, dollarization variable, Eastern Europe, financial deepening, financial development, financial inclusion, Financial sector development, impact of dollarization, Inflation, WP

*Dollarization and Financial Development; Geoffrey J Bannister, Jarkko Turunen, Malin Gardberg; September 11, 2018.*

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## Content in this bundle

- **Dollarization and Financial Development, WP/18/200, September 2018**
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_Source: https://www.imf.org/en/publications/wp/issues/2018/09/11/dollarization-and-financial-development-46164_