Managing Systemic Liquidity Risk in Financially Dollarized Economies

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Managing Systemic Liquidity Risk in Financially Dollarized Economies

Author Info

Miguel A. Kiguel
Alain Ize
Eduardo Levy Yeyati

Additional information is available for the following registered author(s):

Eduardo Levy Yeyati

Abstract

This paper evaluates ways to protect highly dollarized banking systems from systemic liquidity runs (such as the ones that took place recently in Argentina, Uruguay, and Paraguay). In view of the limitations of available (private or official) insurance schemes, and the distortions introduced by central bank lending of last resort (LOLR), the authors favor decentralized liquid foreign asset requirements on dollar deposits, supplemented by a scheme of "circuit breakers." The latter combines the use of limited dollar liquidity to ensure the convertibility of transactional deposits with a mechanism that automatically limits the convertibility of dollar term deposits once triggered by a predetermined decline in banks' liquidity.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/188.

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Length: 31 pages
Date of creation: 30 Sep 2005
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Handle: RePEc:imf:imfwpa:05/188

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This paper has been announced in the following NEP Reports:

NEP-ALL-2005-10-22 (All new papers)
NEP-FIN-2005-10-22 (Finance)
NEP-FMK-2005-10-22 (Financial Markets)
NEP-IAS-2005-10-22 (Insurance Economics)

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Other versions:
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Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

KAMGNA, Severin Yves & Ndambendia, Houdou, 2008. "Excess liquidity and monetary policy effectiveness: The case of CEMAC countries," MPRA Paper 9599, University Library of Munich, Germany. [Downloadable!]
Alain Ize & Eduardo Levy Yeyati, 2005. "Financial De-Dollarization: Is It for Real?," IMF Working Papers 05/187, International Monetary Fund. [Downloadable!]
Other versions:
- Alain Ize & Eduardo Levy Yeyati, 2005. "Financial De-Dollarization: Is It for Real?," Business School Working Papers isitforreal, Universidad Torcuato Di Tella. [Downloadable!]
Eduardo Levy Yeyati, 2006. "Liquidity Insurance in a Financially Dollarized Economy," Business School Working Papers liquid, Universidad Torcuato Di Tella. [Downloadable!]
Other versions:
- Eduardo Levy Yeyati, 2006. "Liquidity Insurance in a Financially Dollarized Economy," NBER Working Papers 12345, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

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