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Currency substitution in a de-dollarizing economy: the case of Russia

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  • Harrison, Barry
  • Vymyatnina, Yulia

Abstract

Currency substitution, the use of foreign money to finance transactions between domestic residents, is a common feature of emerging market economies.Currency substitution reduces the stability of money demand functions in ways that can seriously undermine central bank credibility and its efforts to implement monetary policy.Most transition economies, including Russia, experienced widespread currency substitution in the early phase of transition.Following Russia's financial meltdown in 1998, its monetary authorities introduced a raft of changes that substantially improved the stability and performance of the macroeconomy and reduced currency substitution.This paper investigates currency substitution in the Russian economy in the post-crisis period of 1999-2005.Several measures of currency substitution and different modelling frameworks consistently suggest an on-going decline in currency substitution, a shift that has important implications for Russian monetary policy.

Suggested Citation

  • Harrison, Barry & Vymyatnina, Yulia, 2007. "Currency substitution in a de-dollarizing economy: the case of Russia," BOFIT Discussion Papers 3/2007, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2007_003
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    References listed on IDEAS

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    Cited by:

    1. Isakova, Asel, 2010. "Currency substitution in the economies of Central Asia: how much does it cost?," BOFIT Discussion Papers 14/2010, Bank of Finland Institute for Emerging Economies (BOFIT).

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    More about this item

    Keywords

    currency substitution; transition economies; de-dollarization;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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