Reducing Dollarization in the Caucasus and Central Asia

IMF Working Papers, July 29, 2022

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Authors: Selim Cakir, Maria Atamanchuk, Mazin Al Riyami, Nia Sharashidze, Nathalie Reyes
Published: July 29, 2022
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798400216381.001

Declining but still high dollarization rates in the Caucasus and Central Asia (CCA) region affect macroeconomic stability, monetary policy transmission, and financial sector development.
The paper takes stock of de-dollarization efforts and explores the short-term drivers of financial de‐dollarization in the CCA region.
It highlights that there remains significant scope to further reduce dollarization through continued progress in strengthening macroeconomic policy frameworks and in developing markets and institutions.
Although several studies have investigated the dynamics of dollarization in the CCA, the relative roles of macrofinancial policies and financial market development in the de-dollarization process have not yet been assessed empirically.

Focus on short-term drivers of financial de‐dollarization in the CCA region.
Emphasis on the interplay between macrofinancial policies and financial market/institutional development as determinants of de-dollarization, with an identified empirical gap on their relative roles.
Identifies continued scope to reduce dollarization via:
- strengthening macroeconomic policy frameworks; and
- developing markets and institutions.

Subject: Credit, Currencies, De-dollarization, Dollarization, Foreign exchange, Monetary policy, Money
Keywords: Caucasus, CCA., Central Asia, Central Asia and the Caucasus, Credit, credit dollarization, Currencies, De-dollarization, De-dollarization policy, deposit dollarization, Dollarization, dollarization in the CCA region, dollarization to a shock, dollarization to issuance, Foreign Currency, Foreign Exchange, FX, Monetary Policy, rates in the Caucasus and Central Asia, Reserve requirements