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What is Driving Financial De-dollarization in Latin America?
Author/Editor: Sebastian Sosa, Mercedes Garcia-Escribano
Release Date: © January, 2011
ISBN : 978-1-45521-188-3
Stock #: WPIEA2011010
Stock Status: On back-order
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In the last decade, a group of Latin American countries (Bolivia, Paraguay, Peru, and Uruguay) experienced a gradual, yet sustained decline in financial dollarization. This paper documents the stylized facts and uses a standard VAR approach to examine the drivers of both deposit and credit de-dollarization. It finds that the exchange rate appreciation has been a key factor explaining deposit de-dollarization. The introduction of prudential measures to create incentives to internalize the risks of dollarization (including an active management of reserve requirement differentials), the development of a capital market in local currency, and de-dollarization of deposits have all contributed to a decline in credit dollarization. Continuing efforts on these fronts, while maintaining macroeconomic stability and strong fundamentals, would help deepening de-dollarization.
More publications in this series: Working Papers