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Smuggling, Currency Substitution and Unofficial Dollarization: A Crime-Theoretic Approach
Author:
Mr. Alex Mourmouras
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and
Mr. Steven Russellnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2000: Issue 176
Language:
English
Publication Date:
01 Oct 2000
DOI:
https://doi.org/10.5089/9781451858808.001
ISBN:
9781451858808
ISSN:
1018-5941
Pages:
44
Keywords:
WP; foreign currency; hard currency; Dollarization; Currency Substitution; Smuggling; Seigniorage; currency balance; law of motion; export proceeds; home-country currency market; hard currency stock; fiat currency; Currencies; Anti-smuggling; Stocks; Currency markets; Middle East; Europe
Legal-disclaimer:
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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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2000: Issue 176