Financial Dollarization of Households and Firms: Does It Differ?
Financial Dollarization of Households and Firms: Does It Differ?

Author: Mr.Juan S Corrales

Publisher: International Monetary Fund

Published: 2019-01-22

Total Pages: 45

ISBN-13: 1484395522

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Using a newly complied and extended database from International Financial Statistics, and applying different panel-regression techniques, this paper documents the evolution of households’ and firms’ dollarization over the past decade. We assess the macroeconomic determinants of dollarization for households and firms and explore differences between high and low-income countries. We find that households’ and firms’ dollarization in loans and deposits are weakly explained by the currency substitution model, except in low income countries, where inflation plays a significant role. Instead, market development variables such as financial deepening, access to external debt and FX finance as well as other market considerations are key to explain the dynamics of deposits and loans dollarization, regardless of the level of income.These factors can account for a significant fraction of the dollarization, but using a variance decomposition model, there is evidence that a non-negligible portion has yet to be explained. This suggests that there are key determinants for household and firm dollarization that are not fully captured by traditional macroeconomic explanatory variables.

Dedollarization
Dedollarization

Author: Annamaria Kokenyne

Publisher: International Monetary Fund

Published: 2010-08-01

Total Pages: 53

ISBN-13: 1455201715

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This paper provides a summary of the key policies that encourage dedollarization. It focuses on cases in which the authorities’ intention is to gain greater control of monetary policy and draws on the experiences of countries that have successfully dedollarized. Unlike previous work on the subject, this paper examines both macroeconomic stabilization policies and microeconomic measures, such as prudential regulation of the financial system. This study is also the first attempt to make extensive use of the foreign exchange regulation data reported in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions. The main conclusion is that durable dedollarization depends on a credible disinflation plan and specific microeconomic measures.

Dollarization and Financial Development
Dollarization and Financial Development

Author: Mr.Geoffrey J Bannister

Publisher: International Monetary Fund

Published: 2018-09-11

Total Pages: 39

ISBN-13: 1484373367

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Despite significant strides in financial development over the past decades, financial dollarization, as reflected in elevated shares of foreign currency deposits and credit in the banking system, remains common in developing economies. We study the impact of financial dollarization, differentiating across foreign currency deposits and credit on financial depth, access and efficiency for a large sample of emerging market and developing countries over the past two decades. Panel regressions estimated using system GMM show that deposit dollarization has a negative impact on financial deepening on average. This negative impact is dampened in cases with past periods of high inflation. There is also some evidence that dollarization hampers financial efficiency. The results suggest that policy efforts to reduce dollarization can spur faster and safer financial development.

The Rise of Digital Money
The Rise of Digital Money

Author: Mr.Tobias Adrian

Publisher: International Monetary Fund

Published: 2019-07-15

Total Pages: 20

ISBN-13: 1498324908

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This paper marks the launch of a new IMF series, Fintech Notes. Building on years of IMF staff work, it will explore pressing topics in the digital economy and be issued periodically. The series will carry work by IMF staff and will seek to provide insight into the intersection of technology and the global economy. The Rise of Digital Money analyses how technology companies are stepping up competition to large banks and credit card companies. Digital forms of money are increasingly in the wallets of consumers as well as in the minds of policymakers. Cash and bank deposits are battling with so-called e-money, electronically stored monetary value denominated in, and pegged to, a currency like the euro or the dollar. This paper identifies the benefits and risks and highlights regulatory issues that are likely to emerge with a broader adoption of stablecoins. The paper also highlights the risks associated with e-money: potential creation of new monopolies; threats to weaker currencies; concerns about consumer protection and financial stability; and the risk of fostering illegal activities, among others.

Financial Dollarization of Households and Firms
Financial Dollarization of Households and Firms

Author: Juan Corrales

Publisher:

Published: 2019

Total Pages: 46

ISBN-13:

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Using a newly complied and extended database from International Financial Statistics, and applying different panel-regression techniques, this paper documents the evolution of households' and firms' dollarization over the past decade. We assess the macroeconomic determinants of dollarization for households and firms and explore differences between high and low-income countries. We find that households' and firms' dollarization in loans and deposits are weakly explained by the currency substitution model, except in low income countries, where inflation plays a significant role. Instead, market development variables such as financial deepening, access to external debt and FX finance as well as other market considerations are key to explain the dynamics of deposits and loans dollarization, regardless of the level of income.These factors can account for a significant fraction of the dollarization, but using a variance decomposition model, there is evidence that a non-negligible portion has yet to be explained. This suggests that there are key determinants for household and firm dollarization that are not fully captured by traditional macroeconomic explanatory variables.

Financial Crises Explanations, Types, and Implications
Financial Crises Explanations, Types, and Implications

Author: Mr.Stijn Claessens

Publisher: International Monetary Fund

Published: 2013-01-30

Total Pages: 66

ISBN-13: 1475561008

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This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.

Consumer Law and Economics
Consumer Law and Economics

Author: Klaus Mathis

Publisher: Springer Nature

Published: 2020-08-31

Total Pages: 326

ISBN-13: 3030490289

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This edited volume covers the challenges currently faced by consumer law in Europe and the United States, ranging from fundamental theoretical questions, such as what goals consumer law should pursue, to practical questions raised by disclosure requirements, the General Data Protection Regulation and technology advancements. With governments around the world enacting powerful new regulations concerning consumers, consumer law has become an important topic in the economic analysis of law. Intended to protect consumers, these regulations typically seek to do so by giving them tools to make better decisions, or by limiting the consequences of their bad decisions. Legal scholars are divided, however, regarding the efficacy and effects of these regulations; some call for certain policies to be abolished, while others support a regulatory expansion.

Financial De-Dollarization
Financial De-Dollarization

Author: Mr.Luis Catão

Publisher: International Monetary Fund

Published: 2016-04-26

Total Pages: 25

ISBN-13: 1484341376

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We re-appraise the cross-country evidence on the dollarization of financial systems in emerging market economies. Amidst striking heterogeneity of patterns across regions, we identify a broad global trend towards financial sector de-dollarization from the early 2000s to the eve of the global financial crisis of 2008–09. Since then, de-dollarization has broadly stalled or even reversed in many economies. Yet a few of them have continued to de-dollarize. This suggests that domestic factors are also important and interact with global factors. To gain insight into such an interaction, we examine the experience of Peru since the early 1990s and find that low global interest rates, low global risk-aversion, and high commodity prices have fostered de-dollarization. Domestic macro-prudential measures that raise the relative cost of domestic dollar loans and the introduction and adherence to inflation targeting have also been key.

Cambodia
Cambodia

Author: Mr.Olaf Unteroberdoerster

Publisher: International Monetary Fund

Published: 2014-02-27

Total Pages: 160

ISBN-13: 1484307925

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Cambodia is poised to join a new generation of Asian frontier economies transitioning from low-income to emerging-market. But the path to greater and more shared prosperity requires a solid foundation of sound macroeconomic policies, enabling new growth drivers, tackling a highly dollarized and fragmented financial system, and creating more fiscal policy space to help meet Cambodia’s vast development needs. This book first takes a closer look at the key economic challenges Cambodia faces at the current juncture, highlighting Cambodia’s structural and financial constraints to growth as well as shifting vulnerabilities as Asia rebalances. It then lays out how a strategy of fiscal and financial sector policies, from creating a fairer and more buoyant tax system to modernizing financial instruments, markets and supervision, can help mobilize the resources and tools needed for one of Asia’s youngest and fastest-growing populations to enjoy more self-sustaining and inclusive growth.

International Capital Flows
International Capital Flows

Author: Martin Feldstein

Publisher: University of Chicago Press

Published: 2007-12-01

Total Pages: 500

ISBN-13: 0226241807

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Recent changes in technology, along with the opening up of many regions previously closed to investment, have led to explosive growth in the international movement of capital. Flows from foreign direct investment and debt and equity financing can bring countries substantial gains by augmenting local savings and by improving technology and incentives. Investing companies acquire market access, lower cost inputs, and opportunities for profitable introductions of production methods in the countries where they invest. But, as was underscored recently by the economic and financial crises in several Asian countries, capital flows can also bring risks. Although there is no simple explanation of the currency crisis in Asia, it is clear that fixed exchange rates and chronic deficits increased the likelihood of a breakdown. Similarly, during the 1970s, the United States and other industrial countries loaned OPEC surpluses to borrowers in Latin America. But when the U.S. Federal Reserve raised interest rates to control soaring inflation, the result was a widespread debt moratorium in Latin America as many countries throughout the region struggled to pay the high interest on their foreign loans. International Capital Flows contains recent work by eminent scholars and practitioners on the experience of capital flows to Latin America, Asia, and eastern Europe. These papers discuss the role of banks, equity markets, and foreign direct investment in international capital flows, and the risks that investors and others face with these transactions. By focusing on capital flows' productivity and determinants, and the policy issues they raise, this collection is a valuable resource for economists, policymakers, and financial market participants.