Dollarization of the Banking System: Good or Bad?

By Gianni De Nicolò, Patrick Honohan, A. Ize. Social Science Research Network, 2003

222 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/988f3da72af7a866a99198013710350ce400e597

Citations in the corpus

• Addicted to Dollars (2003, unknown): “The dynamics of bank runs, and the scope for arresting them, including through the provision of central bank liquidity, also are quite different, and more complex, in economies with a high degree of domestic dollarization--e.g., de Nicoló et al. (2003); Gulde et al. (2003).”
• The Late 1990s Financial Crisis in Ecuador: Institutional Weaknesses, Fiscal Rigidities, and Financial Dollarization at Work (2004, unknown): “…financial dollarization creates benefits, in particular in inflationary economies, since it allows countries to maintain financial depth (see De Nicoló, Honohan, and Ize, 2003), the paper claims that during periods of financial turbulence, financial dollarization adds a negative dynamic to…”
• Does Judicial Efficiency Lower the Cost of Credit (2003, unknown): “We gather information on the degree of dollarization in each country from De Nicolo’, Honohan, and Ize (2003).”