The Federal Reserve Board eagle logo links to Board's home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Are Financially Dollarized Countries More Prone to Costly Crises?
Carlos O. Arteta
2003-763  (March 2003)

Abstract:  In view of the role of liability dollarization in recent financial crises, whether or not the widespread presence of foreign-currency-denominated deposits and credits in developing-country banking systems leads to greater financial fragility is an open and pressing question. Using a comprehensive dataset on deposit and credit dollarization for a large number of developing and transition economies, I find little evidence that high dollarization heightens the probability of banking crises or currency crashes. Furthermore, while empirical results suggest that banking crises and currency crashes are contractionary, there is no robust evidence that they are more costly in highly dollarized countries than in countries where dollarization is low. This extensive empirical search highlights that macroeconomic and exchange rate policies are far more important than bank dollarization in determining crisis risks and costs.

Full paper (333 KB PDF)

dollarization, banking crises, currency crashes, contractionary devaluations

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 2003 IFDPs
Accessibility | Contact Us
Last update: August 21, 2002