EAN: 9783110442182

UNDERSTANDING DOLLARIZATION - EMRE OZSOZ ERICK ...

A very commonly observed phenomenon in developing and emerging market economies is the use of
another country s currency (whether the US dollar or another currency) in lieu or in addition
to the local currency. The most common type of this financial phenomenon is partial (de facto)
dollarization where foreign currencies are used side by side with local currency for saving and
borrowing purposes in addition to serving as medium of exchange.Governments in these countries
have been encouraging dollarization for years by allowing their citizens to save and borrow
from local banks in foreign currency. Yet the existence of multiple currencies on banks'
balance sheets on both the asset and liability side poses risks to the health and stability of
the banking system.This book evaluates the practical aspects of partial dollarization in
countries such as Turkey  South Korea  Peru  and Cambodia among others. Starting with the
origins of the phenomenon  the impact on banking systems and financial depth of the credit
markets are discussed along with risks to the banking systems. Challenges faced by Central
Banks and banking regulators are evaluated using recent country studies.

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