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What is Driving Financial De-Dollarization in Latin America?
Author:
Ms. Mercedes Garcia-Escribanonull

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and
Mr. Sebastian Sosa
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Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 010
Language:
English
Publication Date:
01 Jan 2011
DOI:
https://doi.org/10.5089/9781455211883.001
ISBN:
9781455211883
ISSN:
1018-5941
Pages:
23
Keywords:
WP; foreign exchange; Bolivia; credit dollarization; deposit; exchange rate; Paraguay; de-dollarization; banking system; dollarization ratio; deposit dollarization; dollarization level; dollarization hysteresis; Dollarization; Credit; Exchange rates; Bank deposits
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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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In the last decade, a group of Latin American countries (Bolivia, Paraguay, Peru, and Uruguay) experienced a gradual, yet sustained decline in financial dollarization. This paper documents the stylized facts and uses a standard VAR approach to examine the drivers of both deposit and credit de-dollarization. It finds that the exchange rate appreciation has been a key factor explaining deposit de-dollarization. The introduction of prudential measures to create incentives to internalize the risks of dollarization (including an active management of reserve requirement differentials), the development of a capital market in local currency, and de-dollarization of deposits have all contributed to a decline in credit dollarization. Continuing efforts on these fronts, while maintaining macroeconomic stability and strong fundamentals, would help deepening de-dollarization.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2011: Issue 010