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Prudential Responses to de facto Dollarization

Author

Listed:
  • Alain Ize
  • Andrew Powell

Abstract

We present a model that encompasses three distinct motives for dollarization (price volatility, credit risk, and moral hazard) and discuss when risk-based prudential policy responses are called for and the form they should take. We argue that the overall policy response must be tailored to the nature of the dollarization the economy is facing. However, prudential policies should be formulated irrespective of the roots of dollarization. Their aim should be to enhance financial stability by ensuring that banks internalize credit risk within acceptable risk tolerance levels, taking dollarization and the current monetary policy environment as given.

Suggested Citation

  • Alain Ize & Andrew Powell, 2005. "Prudential Responses to de facto Dollarization," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 8(4), pages 241-262.
  • Handle: RePEc:taf:jpolrf:v:8:y:2005:i:4:p:241-262
    DOI: 10.1080/13841280500394485
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    Cited by:

    1. Enrique L. Kawamura & Daniel Heymann, 2005. "On Liability Dollarization: A Simple Model with Domestic and Foreign Creditors," Working Papers 80, Universidad de San Andres, Departamento de Economia, revised Feb 2005.
    2. de la Torre, Augusto & Gozzi, Juan Carlos & Schmukler, Sergio L., 2006. "Financial development in Latin America : big emerging issues, limited policy answers," Policy Research Working Paper Series 3963, The World Bank.
    3. Eduardo Levy Yeyati & Alain Ize, 2005. "Financial De-Dollarization; Is it for Real?," IMF Working Papers 05/187, International Monetary Fund.
    4. Matteo Bobba & Andrew Powell & Giuseppe Della Corte, 2007. "On the Determinants of International Currency Choice: Will the Euro Dominate the World?," Research Department Publications 4530, Inter-American Development Bank, Research Department.
    5. Antonio Garcia Pascual & Jorge Cayazzo & Socorro Heysen & Eva Gutierrez, 2006. "Toward An Effective Supervision of Partially Dollarized Banking Systems," IMF Working Papers 06/32, International Monetary Fund.
    6. Rappoport, Veronica, 2009. "Persistence of dollarization after price stabilization," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 979-989, October.
    7. Matteo Bobba & Andrew Powell & Giuseppe Della Corte, 2007. "Sobre los determinantes de la elección de moneda internacional: Dominará el Euro en el Mundo?," Research Department Publications 4531, Inter-American Development Bank, Research Department.
    8. Luis Fernando Escobar Patiño & Pablo Hernán Mendieta Ossio, 2006. "Inflación y depreciación en una economía dolarizada: el caso de Bolivia," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 1-39, enero-mar.
    9. repec:idb:brikps:78869 is not listed on IDEAS
    10. repec:ers:journl:v:xx:y:2017:i:3b:p:269-279 is not listed on IDEAS
    11. Liliana B Schumacher & Jiro Honda, 2006. "Adopting Full Dollarization in Postconflict Economies; Would the Gains Compensate for the Losses in Liberia?," IMF Working Papers 06/82, International Monetary Fund.

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