The Evidence and Impact of Financial Globalization

Chapter 32

Financial Dollarization

A. Ize

World Bank, Washington, DC, USA

Outline

Introduction

Background

Definitions

Trends

Relative Magnitudes

Determinants

Financial Equilibrium

The Price Risk Paradigm

The Credit Risk Paradigm

The Risk-Shifting Paradigm

The Financial Environment Paradigm

Structural Dollarization

Empirical Evidence

MVP-Based Explanations of Dollarization

Going Beyond Observed MVP

Costs and Risks

Limits to Monetary Policy

Financial Fragility

The Policy Agenda

Efficient Versus Pathological Dollarization

What can be Done?

Conclusion

Acknowledgment

Glossary

Appendix

References

Introduction

The rising dollarization that took place during the 1980s and 1990s throughout most of the developing and emerging world has been a major and growing ...