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Currency Substitution in Egypt and the Yemen Arab Republic: A Comparative Quantitative Analysis


  • Mohamed El-Erian

    (International Monetary Fund)


An empirical analysis of the determinants of currency substitution in Egypt and the Yemen Arab Republic is provided for the period 1980-86. During this period, residents exhibited a marked preference to substitute foreign money balances for domestic balances, as indicated by their holdings of foreign currency deposits. This preference reflects changes in the expected relative returns to, and liquidity of, holdings of foreign balances. Such changes, in turn, are shown to result from intensified financial and economic imbalances, increased political uncertainties, and changes in institutional factors that affect domestic channels for acquiring and using foreign exchange resources.

Suggested Citation

  • Mohamed El-Erian, 1988. "Currency Substitution in Egypt and the Yemen Arab Republic: A Comparative Quantitative Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 35(1), pages 85-103, March.
  • Handle: RePEc:pal:imfstp:v:35:y:1988:i:1:p:85-103

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    Cited by:

    1. Adeniji, Sesan, 2013. "Investigating the Relationship between Currency Substitution, Exchange Rate and Inflation in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach," MPRA Paper 52551, University Library of Munich, Germany, revised 28 Dec 2013.
    2. Alami, Tarik H., 2001. "Currency substitution versus dollarization: A portfolio balance model," Journal of Policy Modeling, Elsevier, vol. 23(4), pages 473-479, May.
    3. David Fielding & Anja Shortland, 2005. "How does political violence affect confidence in a local currency? Evidence from Egypt," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(7), pages 841-866.
    4. Carlos A. Végh Gramont & Ratna Sahay, 1995. "Dollarization in Transition Economies; Evidence and Policy Implications," IMF Working Papers 95/96, International Monetary Fund.
    5. Barja, Gover, 1995. "Time Series Analysis of Macroeconomic Conditions in Open Economies," MPRA Paper 62178, University Library of Munich, Germany.
    6. Calvo, Guillermo & Vegh, Carlos, 1992. "Currency Substitution in Developing Countries: An Introduction," MPRA Paper 20338, University Library of Munich, Germany.
    7. Agenor, Pierre-Richard & Khan, Mohsin S., 1996. "Foreign currency deposits and the demand for money in developing countries," Journal of Development Economics, Elsevier, vol. 50(1), pages 101-118, June.
    8. Rostom,Ahmed Mohamed Tawfick, 2016. "Money demand in the Arab Republic of Egypt : a vector equilibrium correction model," Policy Research Working Paper Series 7679, The World Bank.
    9. AfDB AfDB, 2002. "Working Paper 71 - Exchange Rate Policy and Currency Substitution: The Case of Africa’s Emerging Economies," Working Paper Series 2284, African Development Bank.
    10. Arvind Subramanian, 1997. "The Egyptian Stabilization Experience; An Analytical Retrospective," IMF Working Papers 97/105, International Monetary Fund.
    11. Alberto Giovannini & Bart Turtelboom, 1992. "Currency Substitution," NBER Working Papers 4232, National Bureau of Economic Research, Inc.
    12. Adenutsi, Deodat E. & Yartey, Charles A., 2007. "Financial sector development and the macrodynamics of ‘de facto’ dollarisation in developing countries: the case of Ghana," MPRA Paper 29333, University Library of Munich, Germany.
    13. Kem Reat Viseth, 2001. "Currency Substitution and Financial Sector Developments in Cambodia," International and Development Economics Working Papers idec01-4, International and Development Economics.
    14. Miguel Lebre de Freitas, 2003. "Revisiting Dollarisation Hysteresis: Evidence from Bolivia, Turkey and Indonesia," NIPE Working Papers 12/2003, NIPE - Universidade do Minho.
    15. AfDB AfDB, 2002. "Working Paper 71 - Exchange Rate Policy and Currency Substitution: The Case of Africa’s Emerging Economies," Working Paper Series 2204, African Development Bank.
    16. Jose Martelino & S. Nuri Erbas & Adnan Mazarei & Sena Eken & Paul Cashin, 1995. "Economic Dislocation and Recovery in Lebanon," IMF Occasional Papers 120, International Monetary Fund.
    17. Fridman Alla & Verbetsky Aleksey, 2001. "Currency Substitution in Russia," EERC Working Paper Series 01-05e, EERC Research Network, Russia and CIS.
    18. Sylviane Guillaumont Jeanneney, 1994. "La politique économique en présence de substitution de monnaies," Revue Économique, Programme National Persée, vol. 45(3), pages 349-368.

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