Impact of Remittances on Natural Rate of Dollarization-Trends in Caucasus and Central Asia

22 Pages Posted: 30 Oct 2020

See all articles by Rocio Gondo

Rocio Gondo

Independent

Altynai Aidarova

The National Bank of the Kyrgyz Republic

Manmohan Singh

International Monetary Fund (IMF)

Date Written: September 2020

Abstract

This paper discusses migration and remittances trends, and calculates the natural (or benchmark) level of dollarization in Caucasus, Central Asia and others in the region. This natural level of dollarization is conceptually linked to the currency allocation in a portfolio of deposits to maximize welfare, in line with Ize and Levy Yeyati (2003). The fall in remittances due to the economic slowdown since the spread of COVID-19 affects the macroeconomic fundamentals that determine demand for foreign currency deposits. We calculate the natural dollarization level by integrating structural macroeconomic characteristics. We show that despite the reduction in deposit dollarization, there is still a gap with respect to the natural level of dollarization, especially in a scenario of (persistent) lower remittance inflows.

Keywords: Remittances, Dollarization, Currencies, Exchange rates, Income, WP, remittance, tag0, td valign, deposit dollarization

JEL Classification: F24, F22, F30, E42, F31, E25

Suggested Citation

Gondo, Rocio and Aidarova, Altynai and Singh, Manmohan, Impact of Remittances on Natural Rate of Dollarization-Trends in Caucasus and Central Asia (September 2020). Available at SSRN: https://ssrn.com/abstract=3721210 or http://dx.doi.org/10.2139/ssrn.3721210

Altynai Aidarova

The National Bank of the Kyrgyz Republic

101 T. Umetaliev Street
Bishkek, 720040
Kyrgyzstan

Manmohan Singh

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
17
Abstract Views
91
PlumX Metrics