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Managing Systemic Liquidity Risk in Financially Dollarized Economies
Author:
Mr. Eduardo Levy Yeyati null

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Mr. Alain Ize
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Miguel A. Kiguel null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 188
Language:
English
Publication Date:
01 Sep 2005
DOI:
https://doi.org/10.5089/9781451862072.001
ISBN:
9781451862072
ISSN:
1018-5941
Pages:
31
Keywords:
WP; dollar LOLR; liquidity holding; LOLR facility; dollar deposit; dollar liquidity; liquidation cost; Dollarization; Systemic Liquidity; Banking Crises; bank resolution system; dollar bank; bank liquidation cost; peso bank; bank resolution mechanism; liquidity levels bank; Liquidity; Commercial banks; Lender of last resort; Insurance; Correspondent banking; Europe; Africa
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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This paper evaluates ways to protect highly dollarized banking systems from systemic liquidity runs (such as the ones that took place recently in Argentina, Uruguay, and Paraguay). In view of the limitations of available (private or official) insurance schemes, and the distortions introduced by central bank lending of last resort (LOLR), the authors favor decentralized liquid foreign asset requirements on dollar deposits, supplemented by a scheme of "circuit breakers." The latter combines the use of limited dollar liquidity to ensure the convertibility of transactional deposits with a mechanism that automatically limits the convertibility of dollar term deposits once triggered by a predetermined decline in banks' liquidity.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund