Currency Substitution: The Recent Experience of Bolivia

32 Pages Posted: 15 Feb 2006

See all articles by Benedict Clements

Benedict Clements

International Monetary Fund (IMF) - African Department

Gerd Schwartz

International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: August 1992

Abstract

This paper analyzes the determinants of currency substitution in Bolivia in the period following the 1984/85 hyperinflation. We find that expected exchange rate depreciation and actual interest rate differentials between boliviano and dollar deposits in the Bolivian banking system are statistically significant determinants of the degree of currency substitution. However, the explanatory power of these variables is low compared to variables that measure the degree of inertia in the currency substitution process. Thus, further reductions in inflation or higher interest rates for boliviano bank deposits are likely to have but a small effect on dollarization.

JEL Classification: E4, E41

Suggested Citation

Clements, Benedict and Schwartz, Gerd, Currency Substitution: The Recent Experience of Bolivia (August 1992). IMF Working Paper No. 92/65, Available at SSRN: https://ssrn.com/abstract=884913

Benedict Clements (Contact Author)

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Gerd Schwartz

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

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