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Carry Trade vs. Deposit-Driven Euroization
Author:
Ms. Nan Geng
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,
Tiberiu Scutaru
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Mr. Johannes Wiegandnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 058
Language:
English
Publication Date:
15 Mar 2018
DOI:
https://doi.org/10.5089/9781484345269.001
ISBN:
9781484345269
ISSN:
1018-5941
Pages:
29
Keywords:
WP; interest rate; FX loan; Financial Dollarization; Euroization; Emerging Europe; carry trade euroization; FX position; repayment scheme; FX borrowing; loan origination; Loans; Currencies; Currency mismatches; Financial statements; Central and Eastern Europe; Central Asia; Europe; Global
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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Financial “euroization”—or “dollarization” outside of Central and Eastern Europe—is typically analyzed as a singular phenomenon that can be traced to a common set of factors. This paper argues that two types of euroization need to be distinguished, which have different causes, economic consequences, and policy implications: carry trade euroization that emerges when households and corporations seek to exploit interest rate differentials between foreign currency loans and local currency deposits, and deposit-driven euroization that is rooted in distrust in the local currency as a savings vehicle. We present a theoretical framework that sketches key features of both euroization types, and test it with data from 28 Emerging European and Central Asian economies.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2018: Issue 058