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Money and Credit Under Currency Substitution

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  • Carlos A. Rodríguez

Abstract

This paper examines the effects on the supply of money and credit of a repatriation of foreign assets in an economy subject to currency substitution. In the absence of 100 percent reserve requirements, such a change in the location of deposits, which is not compensated by an increase in money demand, induces a credit boom that works itself out through a transitory current account deficit and real currency appreciation. These results are illustrated with data from the recent experience in Argentina and Peru where local banks have been authorized to capture dollar deposits from residents.
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Suggested Citation

  • Carlos A. Rodríguez, 1992. "Money and Credit Under Currency Substitution," CEMA Working Papers: Serie Documentos de Trabajo. 82, Universidad del CEMA.
  • Handle: RePEc:cem:doctra:82
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    File URL: http://www.ucema.edu.ar/publicaciones/download/documentos/82.pdf
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    References listed on IDEAS

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    1. Calvo, Guillermo & Vegh, Carlos, 1992. "Currency Substitution in Developing Countries: An Introduction," MPRA Paper 20338, University Library of Munich, Germany.
    2. Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1319-1329, December.
    3. Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-625, June.
    4. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America," MPRA Paper 13843, University Library of Munich, Germany.
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    Cited by:

    1. K. Rudgalvis, 1996. "Establishing a new currency and exchange rate determination: the case of Lithuania," CERT Discussion Papers 9604, Centre for Economic Reform and Transformation, Heriot Watt University.
    2. Eugenio Diaz Bonilla & Hector E. Schamis, 1999. "The Political Economy of Exchange Rate Policies in Argentina," Research Department Publications 3078, Inter-American Development Bank, Research Department.
    3. Erwin Nijsse & Elmer Sterken,, 1996. "Shortages, interest rates, and money demand in Poland, 1969-1995," Working Papers 25, Centre for Economic Research, University of Groningen and University of Twente.
    4. Oscar Dancourt, 1999. "Sobre el retraso cambiario y la repatriación de capitales en una economía dolarizada," Capítulos de Libros PUCP / Chapters of PUCP books,in: Afluencia de Capitales y Estabilización en América Latina, edition 1, chapter 7, pages 223-240 Fondo Editorial - Pontificia Universidad Católica del Perú.
    5. Sylviane Guillaumont Jeanneney, 1994. "La politique économique en présence de substitution de monnaies," Revue Économique, Programme National Persée, vol. 45(3), pages 349-368.
    6. Eugenio Diaz Bonilla & Hector E. Schamis, 1999. "La economía política de las políticas de cambio en Argentina," Research Department Publications 3079, Inter-American Development Bank, Research Department.

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