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Currency Substitution and Financial Sector Developments in Cambodia

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Author Info
Kem Reat Viseth
Abstract

The tendency to substitute domestic for foreign currency (as a way of holding wealth and a means of transaction for goods and services) is common throughout the world, and particularly so in countries attempting to overcome thin financial institutions or errant monetary policy. This paper uses monthly data to analyze the phenomenon of currency substitution in Cambodia during the recent economic and financial reform process, 1993-2001. Results show that there is a significant long run relationship between the expected rate of depreciation in market exchange rates and holdings of US dollars. The implications of this result for macroeconomic policy and broader financial sector developments in Cambodia are also examined.

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Paper provided by International and Development Economics in its series International and Development Economics Working Papers with number idec01-4.

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Length: 31 pages
Date of creation: 2001
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Handle: RePEc:idc:wpaper:idec01-4

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E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  1. McKinnon, Ronald I, 1982. "Currency Substitution and Instability in the World Dollar Standard," American Economic Review, American Economic Association, vol. 72(3), pages 320-33, June. [Downloadable!] (restricted)
  2. Liliana Rojas-Suárez, 1992. "Currency Substitution and Inflation in Peru," IMF Working Papers 92/33, International Monetary Fund.
  3. Steven B. Kamin & Neil R. Ericsson, 1993. "Dollarization in Argentina," International Finance Discussion Papers 460, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  4. Sturzenegger, Federico A, 1994. "Hyperinflation with Currency Substitution: Introducing an Indexed Currency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 377-95, August. [Downloadable!] (restricted)
  5. Girton, Lance & Roper, Don E, 1981. "Theory and Implications of Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(1), pages 12-30, February. [Downloadable!] (restricted)
  6. Alberto Giovannini & Bart Turtelboom, 1992. "Currency Substitution," NBER Working Papers 4232, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Hall, Alastair, 1992. "Testing for a unit root in time series using instrumental variable estimators with pretest data based model selection," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 223-250. [Downloadable!] (restricted)
  8. Eduardo Borensztein & Andrew Berg, 2000. "The Choice of Exchange Rate Regime and Monetary Target in Highly Dollarized Economies," IMF Working Papers 00/29, International Monetary Fund.
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  9. Calvo, Guillermo A., 1985. "Currency substitution and the real exchange rate: the utility maximization approach," Journal of International Money and Finance, Elsevier, vol. 4(2), pages 175-188, June. [Downloadable!] (restricted)
  10. Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-25, June. [Downloadable!] (restricted)
  11. Russell Davidson & James G. MacKinnon, 1987. "Testing for Consistency using Artificial Regressions," Working Papers 687, Queen's University, Department of Economics. [Downloadable!]
  12. Melvin, Michael & Ladman, Jerry, 1991. "Coca Dollars and the Dollarization of South America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 752-63, November. [Downloadable!] (restricted)
  13. Guillermo Calvo & Carlos A. Végh Gramont, 1990. "Credibility and the Dynamics of Stabilization Policy: A Basic Framework," IMF Working Papers 90/110, International Monetary Fund.
  14. Canto, Victor A., 1985. "Monetary policy, `dollarization,' and parallel market exchange rates: The case of the Dominican Republic," Journal of International Money and Finance, Elsevier, vol. 4(4), pages 507-521, December. [Downloadable!] (restricted)
  15. Ortiz, Guillermo, 1983. "Currency Substitution in Mexico: The Dollarization Problem," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(2), pages 174-85, May. [Downloadable!] (restricted)
  16. Pablo Guidotti & Carlos A. Rodríguez, 1992. "Dollarization in Latin America: Gresham's Law in Reverse?," CEMA Working Papers: Serie Documentos de Trabajo. 81, Universidad del CEMA. [Downloadable!]
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  17. Adam Bennett & Eduardo Borensztein & Tomás J. T. Baliño, 1999. "Monetary Policy in Dollarized Economies," IMF Occasional Papers 171, International Monetary Fund.
  18. Mohsin S. Khan & Pierre-Richard Agénor, 1992. "Foreign Currency Deposits and the Demand for Money in Developing Countries," IMF Working Papers 92/1, International Monetary Fund.
  19. Rogers, John H, 1990. "Foreign Inflation Transmission under Flexible Exchange Rates and Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(2), pages 195-208, May. [Downloadable!] (restricted)
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