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Foreign Currency Deposits: Implications for Macroeconomic Policies
Author:
Mr. Andréas Georgiou
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Series:
IMF Working Papers
Volume/Issue:
Volume 1991: Issue 108
Language:
English
Publication Date:
01 Nov 1991
DOI:
https://doi.org/10.5089/9781451946352.001
ISBN:
9781451946352
ISSN:
1018-5941
Pages:
37
Keywords:
WP; balance of payments; rate of depreciation; money stock; foreign currency; price level; rate of inflation; nominal exchange rate; excess demand; substitution take; presence of FCDs; interest income; money substitution; money balance; money holding; Currencies; Demand for money; Real exchange rates; Monetary base; Inflation; Eastern Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper discusses the relationship between foreign currency deposits and money, and it shows that the indexation of part of the nominal money supply to the exchange rate, as a result of the presence of foreign currency deposits, will increase the inflationary effects of monetary disequilibria under a floating exchange rate system and will reduce the effect of a devaluation of a usually fixed exchange rate. When a real exchange rate rule is followed, the presence of foreign currency deposits implies that there is less of a tradeoff between the rate of nominal depreciation/inflation and the level of the real exchange rate. The paper shows how certain aspects of financial programming may be affected by the presence of these deposits.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund