Dollarization of the Banking System: Good or Bad?Gianni De Nicolo, Patrick Honohan and Alain Ize No 2003/146, IMF Working Papers from International Monetary Fund Abstract: 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. 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 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2003/146 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
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