Foreign Currency Deposits: Implications for Macroeconomic Policies
Summary:
This paper discusses the relationship between foreign currency deposits and money, and it shows that the indexation of part of the nominal money supply to the exchange rate, as a result of the presence of foreign currency deposits, will increase the inflationary effects of monetary disequilibria under a floating exchange rate system and will reduce the effect of a devaluation of a usually fixed exchange rate. When a real exchange rate rule is followed, the presence of foreign currency deposits implies that there is less of a tradeoff between the rate of nominal depreciation/inflation and the level of the real exchange rate. The paper shows how certain aspects of financial programming may be affected by the presence of these deposits.
Series:
Working Paper No. 1991/108
Subject:
Currencies Demand for money Foreign exchange Inflation Monetary base Money Prices Real exchange rates
English
Publication Date:
November 1, 1991
ISBN/ISSN:
9781451946352/1018-5941
Stock No:
WPIEA1081991
Pages:
37
Please address any questions about this title to publications@imf.org