This paper attempts to estimate the actual (de facto) level of dollarization in Armenia. "Co-circulation" involves the regular use of two or more currencies within an economy. The existence of an unknown amount of foreign currency in circulation makes the outcome of domestic monetary policy uncertain. The volume of foreign currency deposits is easily obtained from the official statistics. However, it is very hard to determine the stock of foreign currency in circulation. The effective money supply may be much larger than the domestic money supply and is subject to behavioral responses which are very different than the movements of the presently measured money supply. The purpose of this paper is to assess the level of dollarization, that is, to evaluate the size and/or proportion of foreign currency in the total money stock of Armenia as a highly dollarized country.
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