Dollarization in Sub-Saharan Africa
Dollarization in Sub-Saharan Africa

Author: Mr.Mauro Mecagni

Publisher: International Monetary Fund

Published: 2015-05-15

Total Pages: 75

ISBN-13: 1513554360

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Dollarization—the use of foreign currencies as a medium of exchange, store of value, or unit of account—is a notable feature of financial development under macroeconomically fragile conditions. It has emerged as a key factor explaining vulnerabilities and currency crises, which have long been observed in Latin America, parts of Asia, and Eastern Europe. Dollarization is also present, prominently, in sub-Saharan Africa (SSA) where it remains significant and persistent at over 30 percent rates for both bank loans and deposits—although it has not increased significantly since 2001. However, progress in reducing dollarization has lagged behind other regions and, in this regard, it is legitimate to ask whether this phenomenon is an important concern in SSA. This study fills a gap in the literature by analyzing these issues with specific reference to the SSA region on the basis of the evidence for the past decade.

Dollarization and the "unbundling" of Globalization in Sub-Saharan Africa
Dollarization and the

Author: Kazeem Bello Ajide

Publisher:

Published: 2018

Total Pages:

ISBN-13:

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This study contributes to the dollarization literature by expanding its determinants to account for different dimensions of globalization, using the widely employed KOF index of globalization. Specifically, globalization is "unbundled" into three different layers namely : economic, social and political dimensions. The study focuses on 25 sub-Saharan African (SSA) countries for the period 2001-2012.Using the Tobit regression approach, the following findings are established. First, from both economic and statis tical relevance, the social and political dimensions of globalization constitute the key dollarization amplifiers, while the explanatory power of the economic component is weak er on dollarization. Second, consistent with the theoretical underpinnings, macroeconomic instabilities (such as inflation and exchange rate volatilities) have the positive expected signs. Third, the positive association between the accumulation of international reserves and dollarization is also apparent. Policy implications are discussed.

Extending the Determinants of Dollarization in Sub-Saharan Africa
Extending the Determinants of Dollarization in Sub-Saharan Africa

Author: Ibrahim Raheem

Publisher:

Published: 2018

Total Pages: 34

ISBN-13:

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This study argues that the ease at which economic agents have access to foreign earnings would influence/increase the level of dollarization in the economy. The three sources of foreign currency earnings are financial integration, trade openness and natural resource rent. As such, we extend the determinants of dollarization to capture these variables. A dataset of 26 countries in sub-Saharan Africa (SSA) for the period 2001-2012 was built. Based on Tobit regression, we found that all the proxies of foreign currency earning, with the exception of natural resource rent, are significant contributors to the increasing rate of dollarization. Specifically, it was found that trade openness and financial liberalization are positive determinants of dollarization, while natural resource rent serves as drag to the dollarization process. These results remain valid to three robustness tests. Policy implications and suggestions for future research were proposed.

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.

Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa
Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa

Author: Mr.Tamim Bayoumi

Publisher: International Monetary Fund

Published: 1995-12-01

Total Pages: 34

ISBN-13: 1451927495

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Africa has more countries than any other continent, and hence the largest number of potential monetary and exchange rate arrangements. This paper looks at whether the existing highly fractured monetary arrangements in Sub-Saharan Africa correspond to what might be expected from the theory of optimum currency areas. This is done by analyzing both the size and correlation of real disturbances across countries and the level of intra-regional trade. The results indicate little evidence that Sub-Saharan African countries would benefit in the near future from larger currency unions.

Information Asymmetry and Financial Dollarization in Sub-Saharan Africa
Information Asymmetry and Financial Dollarization in Sub-Saharan Africa

Author: Simplice Asongu

Publisher:

Published: 2018

Total Pages: 23

ISBN-13:

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Financial dollarization in Sub-Saharan Africa is the most persistent compared to other regions of the world. This study complements the existing scant literature on dollarization in Africa by assessing the role of information sharing offices (public credit registries and private credit bureaus) on financial dollarization in 26 countries of SSA for the period 2001-2012. The empirical evidence is based on Ordinary Least Squares (OLS) and Generalised Method of Moments (GMM). The findings show that information sharing offices (which are designed to reduce information asymmetry) in the banking industry are a deterrent to dollarization. Policy implications are discussed.

Alternative Exchange Rate Strategies and Fiscal Performance in Sub-Saharan Africa
Alternative Exchange Rate Strategies and Fiscal Performance in Sub-Saharan Africa

Author: Mrs.Stefania Bazzoni

Publisher: International Monetary Fund

Published: 1993-08-01

Total Pages: 86

ISBN-13: 1451961057

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This paper investigates the relationship between fiscal performance in 28 sub-Saharan African countries over the 1980-91 period with movements in the exchange rates, the terms of trade, and other macroeconomic aggregates. It finds that the tax base in most of these countries is heavily dependent on imports and import substitutes. Consequently, an overvaluation of the exchange rate in countries which adopted a fixed exchange rate strategy undermines the tax base and results in a widening of the fiscal deficit when the purpose of the strategy is to restore the real exchange rate to its equilibrium through fiscal contraction. Those countries which pursued a variable exchange rate strategy failed in attaining price stability, but exchange rate adjustment was critical in contributing to other macroeconomic objectives, particularly fiscal balance, competitiveness, and growth.