Dollarization of Liabilities: Beyond the Usual Suspects

By Adolfo Barajas, Armando Méndez Morales

January 1, 2003

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Adolfo Barajas, and Armando Méndez Morales. Dollarization of Liabilities: Beyond the Usual Suspects, (USA: International Monetary Fund, 2003) accessed December 25, 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

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.

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

Keywords: Bank deposits, Bank profit maximization behavior, Credit, Currencies, Deposit insurance, Dollarization, Effective spread, Exchange rate, Exchange rates, Foreign currency, Foreign currency borrowing, Foreign currency deposit, Foreign currency loan, Foreign currency mismatch, Foreign exchange, Foreign exchange intervention, Foreign exchange position, Global, Lending position, Market power, Maximization behavior, Panel data, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/011
Stock No:

WPIEA0112003
ISBN:

9781451842807
ISSN:

1018-5941

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