Cover IMF Working Papers
Foreign Currency Deposits and the Demand for Money in Developing Countries
Author: Mr. Mohsin S. Khan and Pierre-Richard Agénor
Series:
IMF Working Papers
Volume/Issue:
Volume 1992: Issue 001
Language:
English
Publication Date:
01 Jan 1992
DOI:
https://doi.org/10.5089/9781451931303.001
ISBN:
9781451931303
ISSN:
1018-5941
Pages:
40
Keywords:
WP; foreign currency; exchange rate; currency ratio; currency holding; unit of account; foreign-currency bond; ratio target; Bank deposits; Currencies; Dollarization; Currency markets; Multiple currency practices; Middle East
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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 examines the relative demands for domestic and foreign currency deposits by residents of developing countries. A dynamic currency substitution model that incorporates forward-looking rational expectations is formulated and then estimated for a group of ten developing countries. The results indicate that the foreign rate of interest and the expected rate of depreciation of the parallel market exchange rate are important factors in the choice between holding domestic money or switching to foreign currency deposits held abroad. From an empirical standpoint, the forward-looking framework adopted here also turns out to be superior to the conventional currency-substitution model.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund