Financial De-Dollarization: A Global Perspective and the Peruvian Experience

26 Pages Posted: 9 Dec 2016

See all articles by Luis Catão

Luis Catão

International Monetary Fund (IMF)

Marco E. Terrones

International Monetary Fund (IMF)

Date Written: April 2016

Abstract

We re-appraise the cross-country evidence on the dollarization of financial systems in emerging market economies. Amidst striking heterogeneity of patterns across regions, we identify a broad global trend towards financial sector de-dollarization from the early 2000s to the eve of the global financial crisis of 2008-09. Since then, de-dollarization has broadly stalled or even reversed in many economies. Yet a few of them have continued to de-dollarize. This suggests that domestic factors are also important and interact with global factors. To gain insight into such an interaction, we examine the experience of Peru since the early 1990s and find that low global interest rates, low global risk-aversion, and high commodity prices have fostered de-dollarization. Domestic macro-prudential measures that raise the relative cost of domestic dollar loans and the introduction and adherence to inflation targeting have also been key.

Keywords: Dollarization, Peru, Financial sector, Currency substitution, Emerging markets, Macroprudential Policy, Regression analysis, Dollarization, Currrency Substitution, Monetary Policy, Emerging Markets

JEL Classification: E44, E50, G20, G21

Suggested Citation

Catão, Luis and Terrones, Marco E., Financial De-Dollarization: A Global Perspective and the Peruvian Experience (April 2016). IMF Working Paper No. 16/97. Available at SSRN: https://ssrn.com/abstract=2882693

Luis Catão (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Marco E. Terrones

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4329 (Phone)

HOME PAGE: http://imf.org/external/np/CV/AuthorCV.aspx?AuthID=171

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