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Unofficial Dollarization in Latin America: Currency Substitution, Network Externalities and Irreversibility

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Author Info
Edgar L. Feige (The University of Wisconsin-Madison)
Vedran Šošiæ (Croatian National Bank)
Michael Faulend (Croatian National Bank)
Velimir Šonje (Reifseinen Bank)

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Abstract

We examine the extent, causes and consequences of the use of foreign currency as a co-circulating medium of exchange and store of value in Latin America. Using new estimates of the amount of foreign currency in circulation in the form of US dollars, we obtain unique measures of currency substitution, asset substitution, dollarization, and bank credibility for many Latin American countries. We also specify and estimate demand functions for foreign currency in circulation in Argentina in order to examine the dynamic consequences of network externalities for hysteresis and irreversibility.

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File URL: http://129.3.20.41/eps/if/papers/0205/0205002.pdf
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Publisher Info
Paper provided by EconWPA in its series International Finance with number 0205002.

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Length: 28 pages
Date of creation: 10 May 2002
Date of revision:
Handle: RePEc:wpa:wuwpif:0205002

Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP/PostScript; pages: 28 ; figures: included. Forthcoming in James W. Dean, Dominick Salvatore and Thomas Willett, eds. The Dollarization Debate, New York: Oxford University Press, 2002
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Related research
Keywords: unofficial de facto dollarization; Latin America; currency substitution; asset substitution; foreign currency; network externalities; Argentina; irreversibility; underground economy;

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Find related papers by JEL classification:
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
F3 - International Economics - - International Finance
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
P2 - Economic Systems - - Socialist Systems and Transition Economies
P3 - Economic Systems - - Socialist Institutions and Their Transitions

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References listed on IDEAS
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.:
  1. Edgar L. Feige, 2005. "Overseas Holdings Of U.S.Currency And The Underground Economy," Macroeconomics 0501022, EconWPA. [Downloadable!]
  2. 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!]
    Other versions:
  3. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," RES Working Papers 4170, Inter-American Development Bank, Research Department. [Downloadable!]
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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.)

  1. Edgar Feige & James Dean, 2002. "Dollarization and Euroization in Transition Countries: Currency Substitution, Asset Substitution, Network Externalities and Irreversibility," International Finance 0205003, EconWPA. [Downloadable!]
  2. Helmut Stix, 2008. "Euroization: What Factors drive its Persistence? Household Data Evidence for Croatia, Slovenia and Slovakia," Working Papers 140, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  3. Pang, Xiaobo & Huang, Weiting, 2005. "货币替代中的价值效应与网络效应
    [Value effect and network effect in the process of currency substitution]    ," MPRA Paper 11627, University Library of Munich, Germany, revised May 2007. [Downloadable!]
  4. Kenneth P. Jameson, 2003. "Is It Possible to De-dollarize? The Case of Ecuador," Working Paper Series, Department of Economics, University of Utah 2003_07, University of Utah, Department of Economics.
    Other versions:
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