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Dollarization of the Banking System: Good or Bad?
Author:
Mr. Gianni De Nicolo
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Mr. Patrick Honohan null

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Mr. Alain Ize
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Series:
IMF Working Papers
Volume/Issue:
Volume 2003: Issue 146
Language:
English
Publication Date:
01 Jul 2003
DOI:
https://doi.org/10.5089/9781451856668.001
ISBN:
9781451856668
ISSN:
1018-5941
Pages:
43
Keywords:
WP; currency; deposit; Dollarization; Financial Deepening; Financial Instability; deposit dollarization ratio; dollarization risk; unit of account; trend dollarization; dollarization dynamics; dollarization trend; dollarization share; payments dollarization; dollarization phenomenon; loan dollarization; Currencies; Exchange rates; Inflation; Bank deposits; Middle East; Caribbean; Asia and Pacific; Central America; South America
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper assesses the benefits and risks associated with dollarization of the banking system. We provide novel empirical evidence on the determinants of dollarization, its role in promoting financial development, and on whether dollarization is associated with financial instability. We find that: (a) the credibility of macroeconomic policy and the quality of institutions are both key determinants of cross-country variations in dollarization; (b) dollarization is likely to promote financial deepening only in a high inflation environment; and (c) financial instability is likely higher in dollarized economies. The implications of these findings for financial sector and monetary policies are discussed.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund