Dollarization of Liabilities: Beyond the Usual Suspects

Author/Editor:

Adolfo Barajas ; Armando Méndez Morales

Publication Date:

January 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Dollarization of liabilities (DL) has emerged as a key factor in explaining the vulnerability of emerging markets to financial and currency crises. "Usual suspects" of causing DL comprise "fatalistic" determinants such as a long history of unsound macroeconomic policies and development and institutional factors, aided by moral hazard opportunities related to government guarantees. This paper assesses empirically the relevance of these factors relative to alternative explanations. Based on a sample of Latin American countries, we find that ongoing central bank intervention in the foreign exchange market, relative market power of borrowers, and financial penetration are at least as important in explaining DL.

Series:

Working Paper No. 2003/011

Subject:

Bank deposits Banking Currencies Deposit insurance Dollarization Exchange rates Financial crises Financial services Foreign exchange Monetary policy Money

English

Publication Date:

January 1, 2003

ISBN/ISSN:

9781451842807/1018-5941

Stock No:

WPIEA0112003

Pages:

41

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