EVOLUTION OF THE THEORETICAL APPROACHES TO HYSTERESIS OF DOLLARIZATION STUDIES
Abstract
Among the features of the unofficial dollarization phenomenon is the effect of dollarization hysteresis. It means the maintenance of a high level of unofficial dollarization for a long time even after the elimination of its causes and improving the general economic and political situation in the country. A synonym for this phenomenon is the well-known term “ratchet effect”. This effect complicates the effective de-dollarization policy and needs to be studied in more detail. Active studies of this phenomenon in the economic literature began in the 1990s on the basis of data from countries that experienced currency and financial crises. In particular, a large number of studies are based on empirical analysis of the experience of Latin American countries, countries with economies in transition, post-Soviet and developing countries. The article summarizes the main theoretical approaches to the study of the phenomenon of hysteresis (or the ratchet effect) of dollarization and currency substitution (use of foreign currency only in cash circulation) in scientific works during 1989-2021. Based on the analysis of empirical studies of dollarization in the countries of Latin America, transition economies and developing countries, conclusions were made regarding the main explanations of the hysteresis of dollarization and currency substitution. Most authors consider long-term devaluation expectations of economic entities and population (based on previous negative experience of the country’s economic performance) and network externalities (the choice of foreign currencies for transactions, since the foreign currencies are already widely used) to be the reasons for maintaining a high level of dollarization even after the inflation decreasing and the exchange rates stabilization. Many works also emphasize the existence of two equilibrium states of deposit dollarization – low (about 15%) and high (about 75%). When exchange rates are stable, convergence to a higher equilibrium level of dollarization begins when the 45-50% threshold is exceeded. For the Ukrainian economy, this issue is also relevant, therefore it is necessary to study in detail the hysteresis of dollarization in Ukraine and the factors affecting it.
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