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Currency Substitution in Developing Countries

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Author Info

  • Guillermo Calvo
  • Carlos A. Végh Gramont

Abstract

This paper reviews the main policy and analytical issues related to currency substitution in developing countries. The paper discusses, first, whether currency substitution should be encouraged or not; second, how the presence of currency substitution affects the choice of nominal anchors in inflation stabilization programs; third, the effects of changes in the rate of growth of the money supply on the real exchange rate; fourth, the interaction between inflationary finance and currency substitution; and, finally, issues related to the empirical verification of the currency substitution hypothesis.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 92/40.

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Length: 32
Date of creation: 01 May 1992
Date of revision:
Handle: RePEc:imf:imfwpa:92/40

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Postal: International Monetary Fund, Washington, DC USA
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Related research

Keywords: Currency substitution; Developing countries; Exchange rates; inflation; foreign currency; exchange rate; inflation tax; money supply; real exchange rate; high inflation; foreign exchange; nominal interest rate; inflation rate; real money; nominal interest rates; flexible exchange rates; price level; fixed exchange rates; high interest rates; inflation stabilization; nominal exchange rate; exchange rate depreciation; dollar bills; rate of inflation; inflationary impact; rational expectations; inflationary consequences; monetary policy; annual inflation; monetary financing; rates of inflation; real exchange rate depreciation; inflation process; relative price; real value; fixed exchange rate; annual inflation rate; floating exchange rates; real money supply; exchange controls; quantity theory of money; foreign exchange holdings; market exchange rate; relative prices; foreign exchange controls; exchange rate determination; exchange rate ? anchors; extreme inflation; monetary dynamics; exchange reserves; black market exchange rate; terms of trade shocks; lower inflation; exchange rate appreciation; real exchange rate appreciation; quantity theory; black market; exchange rate rule; parallel exchange rate; transitory real exchange rate;

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