Dollarization of the Banking System : Good or Bad?

Dollarization of the Banking System : Good or Bad?
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Volume/Issue:
2003/146
Series:
IMF Working Papers
Author(s):
Gianni De Nicolo, Patrick Honohan, and Alain Ize
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
July 2003
DOI:
http://dx.doi.org/10.5089/9781451856668.001
ISBN:
9781451856668
ISSN:
1018-5941
Page:
43
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.
Article

Dollarization of the Banking System

Author(s):
Gianni De Nicolo, Patrick Honohan, and Alain Ize
Published Date:
July 2003
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