Currency Substitution in Latin America : Lessons from the 1990s

Gomis-Porqueras, Pere ; Serrano, Carlos ; Somuano, Alejandro

World Bank, Washington, DC

关键词: BALANCE SHEETS;    BANK ACCOUNTS;    BANK DEPOSITS;    BANKING CRISES;    BANKING SECTOR;   

DOI  :  10.1596/1813-9450-2340
RP-ID  :  WPS2340

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

The authors study how agents in LatinAmerica allocate their balances between dollar-denominatedand domestic currency-denominated accounts. They empiricallydetermine the causes of currency substitution, itssignificance in recent banking crises, and the link betweencurrency substitution, and volatility in macroeconomicaggregates. Their findings: The ratio of dollar deposits tobroad money is strongly influenced by expectations ofdepreciation. They show that depositors in Latin Americaface some uncertainty and frictions when making theirportfolio decisions. They explore the macroeconomicconsequences of a dollarized economy. In particular, theyfind that, in the presence of currency substitution, pastbanking crises are good predictors of future crises. Inother words, having a highly dollarized economy, increasesthe response of the banking system when there is a badshock, which halts the outflow of capital. Once an economyis in crisis, however, having more dollar-denominateddeposits in the banking system, increases the probability ofa longer crisis in the future, because it increases exchangerate exposure in an already weak banking system. Finally,they show that the volatility of macroeconomic variableslinked to the financial system, increases whenever theeconomy becomes more dollarized, which in turn makes thechoice of monetary targets more difficult.