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Determinants of Dollarization: The Banking Side
Author:
Mr. Marco Terrones
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and
Mr. Luis Catão
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Series:
IMF Working Papers
Volume/Issue:
Volume 2000: Issue 146
Language:
English
Publication Date:
01 Aug 2000
DOI:
https://doi.org/10.5089/9781451856637.001
ISBN:
9781451856637
ISSN:
1018-5941
Pages:
37
Keywords:
WP; foreign currency; Dollarization; Money and Banking; Emerging Markets; loan dollarization; loan default; loan market; loan collateralization; devaluation risk; contract bank lending; deposit dollarization; loan portfolio; Currencies; Loans; Bank credit; Exchange rate risk; Eastern Europe; Asia and Pacific
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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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Dollarization in financial intermediation has exhibited a widely diverse pattern across countries. Empirical work relating it to macroeconomic variables has had only limited success in explaining the phenomenon. This paper presents a two-currency banking model to show that deposit and loan dollarization are determined by a broader set of factors. These include interest rates and exchange rate risk, as well as structural factors related to costly banking, credit market imperfections, and availability of tradable collateral. The direction in which dollarization tends to move with macroeconomic shocks is shown to depend on those factors as well as on initial dollarization levels.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund