Why Do Emerging Economies Borrow in Foreign Currency?

September 1, 2003

Preview Citation

Format: Chicago

Olivier D Jeanne. Why Do Emerging Economies Borrow in Foreign Currency?, (USA: International Monetary Fund, 2003) 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

This paper explores the hypothesis that the dollarization of liabilities in emerging market economies is the result of a lack of monetary credibility. I present a model in which firms choose the currency composition of their debts so as to minimize their probability of default. Decreasing monetary credibility can induce firms to dollarize their liabilities, even though this makes them vulnerable to a depreciation of the domestic currency. The channel is different from the channel studied in the earlier literature on sovereign debt, and it applies to both private and public debt. The paper presents some empirical evidence and discusses policy implications.

Subject: Conventional peg, Currencies, Domestic debt, External debt, Foreign currency debt, Foreign exchange, Labor, Money, Public debt, Self-employment

Keywords: Conventional peg, Currencies, Currency composition, Currency peg, Debt contract, Debt structure, Dollar debt, Domestic debt, Exchange rate, Foreign currency, Foreign currency debt, Liability Dollarization, Long-term debt, Monetary Credibility, Monetary policy, Results from a lack, Self-employment, Short-term debt, Southeast Asia, WP

Publication Details

Pages:

38
Volume:

---
DOI:

---
Issue:

---
Series:

Working Paper No. 2003/177
Stock No:

WPIEA1772003
ISBN:

9781451858891
ISSN:

1018-5941

FACTSHEETS

RESOURCES

TOPICS

Flagship Publications

Other Publications

IMF reports and publications by country

Regional Offices

All News

See Also

For Journalists

Press Center

RESOURCES

FLAGSHIPS

KEY SERIES

IMF NOTES

IMF Working Papers