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Financial Dollarization, (De)Dollarization and The Turkish Experience

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Author Info

  • Gokhan Yilmaz

    (Central Bank of the Republic of Turkey)

Abstract

This paper briefly discusses the causes and consequences of financial dollarization with special reference to the recent Turkish experience. Most developing countries have a limited,unofficial form of dollarization, which makes them vulnerable to external shocks through currency mismatches. Financial dollarization can limit the scope of macroeconomic policies and cause fear of floating. Consequently, dedollarization policies are now shifting from a generally passive stance “learning to live with it” type approach to a more active stance such as “carrot and stick” approach. This paper also presents a composite financial dollarization index for Turkey along with a brief discussion of corporate sector debt dollarization. The recent Turkish experience towards endogenous dedollarization appears to be consistent with the view that dedollarization can also be viewed as a side effect of prudent fiscal and monetary policies. Although the dollarization composite index is on a decreasing trend, it is however still high. Therefore, an active dedollarization strategy associated with a sound macroeconomic policy stance should be considered to support the implementation of a Full Fledged Inflation Targeting Regime in the near future.

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File URL: http://www.tek.org.tr/dosyalar/G-YILMAZ-DE-DOLLAR.pdf
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Bibliographic Info

Paper provided by Turkish Economic Association in its series Working Papers with number 2005/6.

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Length: 19 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:tek:wpaper:2005/6

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Related research

Keywords: Financial Dollarization; Dedollarization; Turkey;

References

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  1. Gianni De Nicoló & Patrick Honohan & Alain Ize, 2003. "Dollarization of the Banking System: Good or Bad?," IMF Working Papers 03/146, International Monetary Fund.
  2. Mishkin, Frederic S. & Savastano, Miguel A., 2001. "Monetary policy strategies for Latin America," Journal of Development Economics, Elsevier, vol. 66(2), pages 415-444, December.
  3. Honohan, Patrick & Shi, Anging, 2001. "Deposit dollarization and the financial sector in emerging economies," Policy Research Working Paper Series 2748, The World Bank.
  4. Arturo Galindo & Leonardo Leiderman, 2005. "Living with Dollarization and the Route to Dedollarization," Research Department Publications 4397, Inter-American Development Bank, Research Department.
  5. Frederic S. Mishkin, 2001. "Financial Policies and the Prevention of Financial Crises in Emerging Market Countries," NBER Working Papers 8087, National Bureau of Economic Research, Inc.
  6. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," NBER Working Papers 10015, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Cafer Kaplan & Erdal Ozmen & Cihan Yalcin, 2006. "The Determinants and Implications of Financial Asset Holdings of Non-Financial Firms in Turkey : An Emprical Investigation," Working Papers 0606, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  2. Ozlem Tasseven, 2009. "Seasonal Co-integration An Extension of the Johansen and Schaumburg Approach with an Exclusion Test," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(1), pages 39-53, March.
  3. Metin-Özcan, Kıvılcım & Us, Vuslat, 2007. "Dedollarization in Turkey after decades of dollarization: A myth or reality?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 385(1), pages 292-306.

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