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Financial De-Dollarization; A Global Perspective and the Peruvian Experience

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  • Luis Catão
  • Marco Terrones

Abstract

We re-appraise the cross-country evidence on the dollarization of financial systems in emerging market economies. Amidst striking heterogeneity of patterns across regions, we identify a broad global trend towards financial sector de-dollarization from the early 2000s to the eve of the global financial crisis of 2008–09. Since then, de-dollarization has broadly stalled or even reversed in many economies. Yet a few of them have continued to de-dollarize. This suggests that domestic factors are also important and interact with global factors. To gain insight into such an interaction, we examine the experience of Peru since the early 1990s and find that low global interest rates, low global risk-aversion, and high commodity prices have fostered de-dollarization. Domestic macro-prudential measures that raise the relative cost of domestic dollar loans and the introduction and adherence to inflation targeting have also been key.

Suggested Citation

  • Luis Catão & Marco Terrones, 2016. "Financial De-Dollarization; A Global Perspective and the Peruvian Experience," IMF Working Papers 16/97, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:16/97
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    References listed on IDEAS

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    1. Winkelried, Diego & Castillo, Paul, 2010. "Dollarization persistence and individual heterogeneity," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1596-1618, December.
    2. Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," NBER Working Papers 12163, National Bureau of Economic Research, Inc.
    3. Miguel A Savastano, 1996. "Dollarization in Latin America; Recent Evidence and Some Policy Issues," IMF Working Papers 96/4, International Monetary Fund.
    4. Choy, Marylin & Chang, Giancarlo, 2014. "Medidas macroprudenciales aplicadas en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 27, pages 25-50.
    5. Renzo Rossini & Zenon Quispe & Jorge Loyola, 2012. "Fiscal policy considerations in the design of monetary policy in Peru," BIS Papers chapters,in: Bank for International Settlements (ed.), Fiscal policy, public debt and monetary policy in emerging market economies, volume 67, pages 253-267 Bank for International Settlements.
    6. Renzo Rossini & Zenon Quispe & Donita Rodriguez, 2011. "Capital flows, monetary policy and forex intervention in Peru," BIS Papers chapters,in: Bank for International Settlements (ed.), Capital flows, commodity price movements and foreign exchange intervention, volume 57, pages 261-274 Bank for International Settlements.
    7. Reinhart, Carmen & Calvo, Guillermo, 2001. "Reflections on Dollarization," MPRA Paper 8206, University Library of Munich, Germany.
    8. Aaron Tornell & Frank Westermann (ed.), 2005. "Boom-Bust Cycles and Financial Liberalization," MIT Press Books, The MIT Press, edition 1, volume 1, number 9780262201599, January.
    9. Rappoport, Veronica, 2009. "Persistence of dollarization after price stabilization," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 979-989, October.
    10. Shu Lin & Haichun Ye, 2013. "Does Inflation Targeting Help Reduce Financial Dollarization?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1253-1274, October.
    11. Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
    12. Mercedes Garcia-Escribano & Sebastian Sosa, 2011. "What is Driving Financial De-Dollarization in Latin America?," IMF Working Papers 11/10, International Monetary Fund.
    13. Marco Terrones & Luis Catão, 2000. "Determinants of Dollarization; The Banking Side," IMF Working Papers 00/146, International Monetary Fund.
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    1. repec:rbp:esteco:ree-33-03 is not listed on IDEAS
    2. repec:ukb:journl:y:2016:i:238:p:6-12 is not listed on IDEAS

    More about this item

    Keywords

    Dollarization; Peru; Financial sector; Currency substitution; Emerging markets; Macroprudential Policy; Regression analysis; Dollarization; Currrency Substitution; Monetary Policy; Emerging Markets.;

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