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Euroization Drivers and Effective Policy Response: An Application to the case of Albania
Author:
Guido della Valle null

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Vasilika Kota null

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Mr. Romain M Veyrune
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Ezequiel Cabezon null

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Shaoyu Guo null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 021
Language:
English
Publication Date:
25 Jan 2018
DOI:
https://doi.org/10.5089/9781484338728.001
ISBN:
9781484338728
ISSN:
1018-5941
Pages:
30
Keywords:
WP; interest rate; foreign currency intermediation; loans vis-à-vis; opportunity cost; euroization trend; financial asset; foreign currency loan; euroization; dollarization; financial stability; reserve requirement; exchange rate volatility; foreign currency loans vis-à-vis; banknotes in circulation; foreign currency reserve; loan euroization; Currencies; Bank deposits; Exchange rate risk; Exchange rates; 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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This paper proposes a methodology to develop empirically based and theoretically consistent deeuroization policies. It is derived from the experience of Albania. The paper is the first attempt to provide an empirical measure of the optimal level of euroization. The results indicate that euroization is trending above the estimated measure in Albania, calling for deeuroization policies. In the long term, deeuroization requires maintaining the commitment to low and stable inflation in a context of greater exchange rate flexibility to encourage saving in local currency. In the short term, policies that mitigate the financial stability risk due to euroization contribute to deeuroization inasmuch as they make banking intermediation in euro less financially attractive to the public.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund