Dollarization in Transition Economies: Evidence and Policy Implications

September 1, 1995

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Format: Chicago

Carlos A. Végh Gramont, and Ratna Sahay. Dollarization in Transition Economies: Evidence and Policy Implications, (USA: International Monetary Fund, 1995) accessed November 21, 2024

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

After most restrictions on foreign currency holdings were relaxed in the early 1990s, foreign currency deposits in transition economies have been increasing rapidly. This paper takes a first look at the evidence on dollarization for 15 transition economies, and then discusses some key conceptual and policy implications. Depending on the institutional constraints, foreign currency deposits as a proportion of broad money reached a peak of between 30 and 60 percent in 1992-93. Unlike what has been observed in Latin America, however, dollarization has fallen substantially in the aftermath of successful stabilization plans in Estonia, Lithuania, Mongolia, and Poland. Since foreign currency deposits reflect mainly a portfolio choice, the fall in dollarization can be primarily attributed to higher real returns on domestic-currency assets, as a result of lower inflation and more market-determined interest rates.

Subject: Bank deposits, Currencies, Deposit rates, Dollarization, Financial services, Inflation, Monetary policy, Money, Prices

Keywords: Baltics, Bank deposits, Currencies, Currency substitution, Deposit rates, Dollarization, Dollarization literature, Dollarization process, Dollarization ratio, Exchange rate, Foreign currency, Inflation, Inflation rate, Monetary policy, Money supply, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1995/096
Stock No:

WPIEA0961995
ISBN:

9781451950083
ISSN:

1018-5941

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