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Reflections on Dollarization

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  • Reinhart, Carmen
  • Calvo, Guillermo

Abstract

During the past few years, many emerging market countries have suffered severe currency and banking crises. A popular view blames fixed exchange rates--specifically, soft pegs--for these financial meltdowns. Indeed, fixed exchange rates have been so demonized by some adherents to that view that the only alternative for emerging markets seems to be to allow their currencies to float. Other analysts draw a very different lesson from these events. After all, a country cannot have a currency crisis if it does not have a domestic currency in the first place; firms, banks, and households are immune to currency mismatches if all assets and liabilities are denominated in the same currency. The obvious policy recommendation that follows is that full dollarization may, in some cases, be desirable. Some observers forecast that intermediate exchange rate regimes will vanish, as countries move toward corner solutions--with freely-floating exchange rate regimes at one end, hard pegs, such as currency boards or dollarization, at the other. Thus, the current circumstances provide the ingredients for a rich policy debate.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8206.

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Date of creation: 2001
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Handle: RePEc:pra:mprapa:8206

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  1. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
  2. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
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Cited by:
  1. Ahmed, Shaghil, 2003. "Sources of economic fluctuations in Latin America and implications for choice of exchange rate regimes," Journal of Development Economics, Elsevier, vol. 72(1), pages 181-202, October.
  2. Andreas Hauskrecht & Nguyen Thanh Hai, 2004. "Dollarization in Viet Nam," Working Papers 2004-25, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  3. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  4. Assaf Razin & Yona Rubinstein, 2005. "Evaluation of Exchange-Rate, Capital-Market, and Dollarization Regimes in the Presence of Sudden Stops," Working Papers 042005, Hong Kong Institute for Monetary Research.
  5. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 28(2), pages 37-61, October.
  6. Gande, Amar & Parsley, David, 2010. "Sovereign Credit Ratings, Transparency and International Portfolio Flows," MPRA Paper 21118, University Library of Munich, Germany.
  7. Carl Grekou, 2014. "Revisiting the nexus between currency misalignments and growth in the CFA Zone," EconomiX Working Papers 2014-4, University of Paris West - Nanterre la Défense, EconomiX.
  8. International Monetary Fund, 2002. "Macroeconomic Adjustment in a Highly Dollarized Economy: The Case of Cambodia," IMF Working Papers 02/92, International Monetary Fund.
  9. Federico Foders, 2001. "Die ökonomische und wirtschaftspolitische Entwicklung Lateinamerikas nach dem Zweiten Weltkrieg," Kiel Working Papers 1066, Kiel Institute for the World Economy.
  10. Shaghil Ahmed, 1999. "Sources of economic fluctuations in Latin America and implications for choice of exchange rate regimes," International Finance Discussion Papers 656, Board of Governors of the Federal Reserve System (U.S.).
  11. Razin, Assaf & Rubinstein, Yona, 2004. "Growth Effects of the Exchange-Rate Regime and the Capital Account Openness in A Crisis-Prone World Market: A Nuanced View," CEPR Discussion Papers 4475, C.E.P.R. Discussion Papers.
  12. Shaghil Ahmed & Christopher J. Gust & Steven B. Kamin & Jonathan Huntley, 2002. "Are depreciations as contractionary as devaluations? A comparison of selected emerging and industrial economies," International Finance Discussion Papers 737, Board of Governors of the Federal Reserve System (U.S.).
  13. Erjon Luçi & Marta Muço & Elvira Sojli, 2006. "Euroisation in Albania: From Spontaneous to Consensual," wiiw Balkan Observatory Working Papers 071, The Vienna Institute for International Economic Studies, wiiw.

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