Financial (unofficial) dollarization is widely regarded as the key source of financial fragility underlying recent financial crises in Asia and Latin America. Currently one of the most topical issues in the developing world, it has spurred in recent years a body of analytical and empirical work that has shifted the debate towards a more proactive de-dollarization agenda that is already informing policy decisions in many developing economies. This book is the first to address this new agenda from a comprehensive, policy-oriented perspective. It specifically addresses the most distinctive aspects and policy implications of the financial dollarization debate. The book covers analytical and empirical advances on the causes and implications of financial dollarization, the policy options to mitigate its negative effects, and recent experiences in adapting the monetary and prudential frameworks to a dollarized environment, developing local-currency substitutes, and limiting dollarization through administrative restrictions.
'The contributions are generally of a high quality; the editors have done an excellent job, and the publication comes at an appropriate time.' - Bishnodat Persaud, Development and Policy Review
Preface; O.Dancourt & S.Ingves
Introduction; A.Armas, A.Ize & E.Levy-Yeyati
PART I: FINANCIAL DOLLARIZATION: ROOTS AND DYNAMICS
Financial Dollarization Equalibria: A Framework for Policy Analysis; A.Ize
Comments on Chapter 2; O.Jeanne
Financial De-dollarization: Is it for Real? A.Ize & E.Levy-Yeyati
Comments on Chapter 3; R.Chang
Financial Dollarization in Latin America; R.Rennhack & M.Nozaki
Comments on Chapter 4; K.Cowan
PART II: MONETARY AND EXCHANGE RATE MANAGEMENT
Exchange Rate and Monetary Management in a Partially Dollarized Economy; L.Leiderman, R.Maino & E.Parrado
Targeting Inflation in a Dollarized Economy: The Peruvian Experience; A.Armas & F.Grippa
Discussants; K.Schmidt-Hebbel
PART III: PRUDENTIAL MANAGEMENT
Controlling Currency Mismatches in Emerging Economies; P.Turner
Prudential Management in a Partially Dollarized Economy: Toward Internationally Accepted Best Practices; J.Cayazzo, A.I.G.Pascual, E.Gutierrez & S.Heysen
Managing Systematic Liquidity Risk in a Dollarized Economy; A.Ize, M.Kiguel & E.Levy-Yeyati
To Hell and Back: Crisis Management in a Dollarized Economy: The Case of Uruguay; J.de Brun & G.Licandro
Discussant; P.Turner
PART IV: PROMOTING THE LOCAL CURRENCY
Can Indexed Debt Absolve Original Sin? Going Indexed or is Self-Flagellation Needed? A.Holland & C.Mulder
De-dollarizing: The Gentle Way or the Hard Way? D.C.Hardy & C.Pazarbasioglu
Discussants; A.de La Torre, L.Oscar Herrera & C.Irigoyen
PART V: THE ROUTE AHEAD
Summary of Round Table Discussion; A.Carstens, F.de Paula Gutierrez, L.Leiderman, J.A.Morales, M.Rodlauer & R.Rossini
ADRIÁN ARMAS is Head of the Economic Studies Department of the Central Bank of Peru, where he has spent his entire career. Previously he occupied the position of Head of the Monetary Policy Division. He participated in the design and implementation of Peru's inflation targeting scheme and has written articles on this subject for the IMF, ECB and BIS.
ALAIN IZE has worked at the IMF since 1985, first in the Fiscal Affairs Department, and since 1992 in the Monetary and Financial Systems Department. Previous to joining the Fund, he was a Professor in the Economics Department of El Colegio de Mexico and worked as a consultant for Banco de Mexico. His research interests and publications are in the areas of monetary theory and policy, international finance and banking (both commercial banking and central banking).
EDUARDO LEVY-YEYATI is Associate Professor of Economics and Director of the Centre for Financial Research at Universidad Torcuato Di Tella, Buenos Aires, Argentina, and Research Associate at the Inter-American Development Bank. He has served as Chief Economist of the Central Bank of Argentina and as Economist at the International Monetary Fund, and has published widely in the areas of international finance and banking.
Description
Financial (unofficial) dollarization is widely regarded as the key source of financial fragility underlying recent financial crises in Asia and Latin America. Currently one of the most topical issues in the developing world, it has spurred in recent years a body of analytical and empirical work that has shifted the debate towards a more proactive de-dollarization agenda that is already informing policy decisions in many developing economies. This book is the first to address this new agenda from a comprehensive, policy-oriented perspective. It specifically addresses the most distinctive aspects and policy implications of the financial dollarization debate. The book covers analytical and empirical advances on the causes and implications of financial dollarization, the policy options to mitigate its negative effects, and recent experiences in adapting the monetary and prudential frameworks to a dollarized environment, developing local-currency substitutes, and limiting dollarization through administrative restrictions.
Reviews
'The contributions are generally of a high quality; the editors have done an excellent job, and the publication comes at an appropriate time.' - Bishnodat Persaud, Development and Policy Review
Contents
Preface; O.Dancourt & S.Ingves
Introduction; A.Armas, A.Ize & E.Levy-Yeyati
PART I: FINANCIAL DOLLARIZATION: ROOTS AND DYNAMICS
Financial Dollarization Equalibria: A Framework for Policy Analysis; A.Ize
Comments on Chapter 2; O.Jeanne
Financial De-dollarization: Is it for Real? A.Ize & E.Levy-Yeyati
Comments on Chapter 3; R.Chang
Financial Dollarization in Latin America; R.Rennhack & M.Nozaki
Comments on Chapter 4; K.Cowan
PART II: MONETARY AND EXCHANGE RATE MANAGEMENT
Exchange Rate and Monetary Management in a Partially Dollarized Economy; L.Leiderman, R.Maino & E.Parrado
Targeting Inflation in a Dollarized Economy: The Peruvian Experience; A.Armas & F.Grippa
Discussants; K.Schmidt-Hebbel
PART III: PRUDENTIAL MANAGEMENT
Controlling Currency Mismatches in Emerging Economies; P.Turner
Prudential Management in a Partially Dollarized Economy: Toward Internationally Accepted Best Practices; J.Cayazzo, A.I.G.Pascual, E.Gutierrez & S.Heysen
Managing Systematic Liquidity Risk in a Dollarized Economy; A.Ize, M.Kiguel & E.Levy-Yeyati
To Hell and Back: Crisis Management in a Dollarized Economy: The Case of Uruguay; J.de Brun & G.Licandro
Discussant; P.Turner
PART IV: PROMOTING THE LOCAL CURRENCY
Can Indexed Debt Absolve Original Sin? Going Indexed or is Self-Flagellation Needed? A.Holland & C.Mulder
De-dollarizing: The Gentle Way or the Hard Way? D.C.Hardy & C.Pazarbasioglu
Discussants; A.de La Torre, L.Oscar Herrera & C.Irigoyen
PART V: THE ROUTE AHEAD
Summary of Round Table Discussion; A.Carstens, F.de Paula Gutierrez, L.Leiderman, J.A.Morales, M.Rodlauer & R.Rossini
Authors
ADRIÁN ARMAS is Head of the Economic Studies Department of the Central Bank of Peru, where he has spent his entire career. Previously he occupied the position of Head of the Monetary Policy Division. He participated in the design and implementation of Peru's inflation targeting scheme and has written articles on this subject for the IMF, ECB and BIS.
ALAIN IZE has worked at the IMF since 1985, first in the Fiscal Affairs Department, and since 1992 in the Monetary and Financial Systems Department. Previous to joining the Fund, he was a Professor in the Economics Department of El Colegio de Mexico and worked as a consultant for Banco de Mexico. His research interests and publications are in the areas of monetary theory and policy, international finance and banking (both commercial banking and central banking).
EDUARDO LEVY-YEYATI is Associate Professor of Economics and Director of the Centre for Financial Research at Universidad Torcuato Di Tella, Buenos Aires, Argentina, and Research Associate at the Inter-American Development Bank. He has served as Chief Economist of the Central Bank of Argentina and as Economist at the International Monetary Fund, and has published widely in the areas of international finance and banking.
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