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Financial Dollarization, (De)Dollarization and The Turkish Experience

  • Gokhan Yilmaz

    (Central Bank of the Republic of Turkey)

This paper briefly discusses the causes and consequences of financial dollarization with special reference to the recent Turkish experience. Most developing countries have a limited,unofficial form of dollarization, which makes them vulnerable to external shocks through currency mismatches. Financial dollarization can limit the scope of macroeconomic policies and cause fear of floating. Consequently, dedollarization policies are now shifting from a generally passive stance “learning to live with it” type approach to a more active stance such as “carrot and stick” approach. This paper also presents a composite financial dollarization index for Turkey along with a brief discussion of corporate sector debt dollarization. The recent Turkish experience towards endogenous dedollarization appears to be consistent with the view that dedollarization can also be viewed as a side effect of prudent fiscal and monetary policies. Although the dollarization composite index is on a decreasing trend, it is however still high. Therefore, an active dedollarization strategy associated with a sound macroeconomic policy stance should be considered to support the implementation of a Full Fledged Inflation Targeting Regime in the near future.

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File URL: http://www.tek.org.tr/dosyalar/G-YILMAZ-DE-DOLLAR.pdf
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Paper provided by Turkish Economic Association in its series Working Papers with number 2005/6.

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Length: 19 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:tek:wpaper:2005/6
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  1. Arturo Galindo & Leonardo Leiderman, 2005. "Living with Dollarization and the Route to Dedollarization," IDB Publications (Working Papers) 6690, Inter-American Development Bank.
  2. Frederic S. Mishkin & Miguel A. Savastano, 2000. "Monetary Policy Strategies for Latin America," NBER Working Papers 7617, National Bureau of Economic Research, Inc.
  3. Gerardo Licandro & José Antonio Licandro, 2003. "Building the Dedollarization Agenda: Lessons from the Uruguayan Case," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 193-218, July-Dece.
  4. De Nicolo, Gianni & Honohan, Patrick & Ize, Alain, 2003. "Dollarization of the banking system : good or bad?," Policy Research Working Paper Series 3116, The World Bank.
  5. Frederic S. Mishkin, 2001. "Financial Policies and the Prevention of Financial Crises in Emerging Market Countries," NBER Working Papers 8087, National Bureau of Economic Research, Inc.
  6. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," CEMA Working Papers 594, China Economics and Management Academy, Central University of Finance and Economics.
  7. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
  8. Honohan, Patrick & Shi, Anging, 2001. "Deposit dollarization and the financial sector in emerging economies," Policy Research Working Paper Series 2748, The World Bank.
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