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Impact of Remittances on Natural Rate of Dollarization—Trends in Caucasus and Central Asia
Author:
Rocio Gondo null

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Altynai Aidarova null

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Mr. Manmohan Singh
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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 185
Language:
English
Publication Date:
11 Sep 2020
DOI:
https://doi.org/10.5089/9781513556536.001
ISBN:
9781513556536
ISSN:
1018-5941
Pages:
21
Keywords:
WP; remittance; deposit dollarization; natural rate of dollarization; Russia; COVID; remittances; Central Asia; Caucasus; remittance inflow; dollarization policy; benchmark dollarization; dollarization level; exchange rate depreciation; Dollarization; Exchange rates; Currencies; Income; Global; Central Asia and the Caucasus; loan dollarization rate; Migration
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 discusses migration and remittances trends, and calculates the natural (or benchmark) level of dollarization in Caucasus, Central Asia and others in the region. This natural level of dollarization is conceptually linked to the currency allocation in a portfolio of deposits to maximize welfare, in line with Ize and Levy Yeyati (2003). The fall in remittances due to the economic slowdown since the spread of COVID-19 affects the macroeconomic fundamentals that determine demand for foreign currency deposits. We calculate the natural dollarization level by integrating structural macroeconomic characteristics. We show that despite the reduction in deposit dollarization, there is still a gap with respect to the natural level of dollarization, especially in a scenario of (persistent) lower remittance inflows.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund