Smuggling, Currency Substitution and Unofficial Dollarization: A Crime-Theoretic Approach
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Summary:
Large stocks of U.S. dollars and other hard currencies circulate in the transition economies, in Latin America, and in other countries that have experienced macroeconomic mismanagement. Using a monetary model that combines the legal restrictions and crime-theoretic traditions, this paper demonstrates how leaky exchange controls lead to currency substitution and progressive dollarization. The paper also analyzes the impact of dollarization on the ability of governments to earn seigniorage, the dynamics of dollarization in a growing economy, and the central role of expectations—specifically, confidence in the domestic currency—in determining the extent of dollarization and, potentially, in reversing it.
Series:
Working Paper No. 2000/176
Subject:
Anti-smuggling Currencies Currency markets Dollarization Financial institutions Financial markets Monetary policy Money Revenue administration Stocks
English
Publication Date:
October 1, 2000
ISBN/ISSN:
9781451858808/1018-5941
Stock No:
WPIEA1762000
Pages:
44
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