THEORETICAL APPROACHES TO THE DEFINITION OF DOLLARIZATION
Abstract
The article provides a comprehensive overview of the different theoretical approaches to the definition of dollarization. The phenomenon of dollarization, which means the use of foreign currency in the monetary circulation of a country, has been the subject of extensive research in the economic science. The terms “currency substitution” and “dollarization” are commonly used to refer to this phenomenon, although there are other approaches as well (among other terms there are “currency mobility”, “euroization”, “xenomonetization”, “double currency”, “parallel currency market”, “dual currency regime”, “multiple currency phenomenon” etc.). The various classifications of dollarization were analyzed in the article. According to the status of the foreign currency, dollarization can be classified as de facto dollarization or de jure dollarization; according to the way the foreign currency is used – as partial dollarization or full dollarization; according to the functions of money – as payments dollarization, financial dollarization or real dollarization; according to the involvement of banks – as banking dollarization or non-banking dollarization; according to financial assets – as deposit dollarization or credit dollarization; according to the status and scale of the use of foreign currency – as unofficial dollarization, semi-official dollarization or official (full) dollarization; as a currency regime, according to the presence of the national currency – as full dollarization, “near” dollarization, and quasi-dollarization (currency board regime). The conclusions are made that the term “dollarization” became widely accepted term for the phenomenon of the use of a foreign currency in the circulation; currency substitution is a partial variant of dollarization since it means the use of a foreign currency as a medium of exchange; “official or full dollarization” is used as one of the exchange rate regimes. According to the active process of seeking an appropriate terminology, it is likely that the term “dollarization” will be replaced in future during the evolution of the world financial system.
References
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Miles, Marc (1978). Currency Substitution, Flexible Exchange Rates, and Monetary Independence. The American Economic Review. Vol. 68, No. 3, pp. 428-436.
McKinnon, Ronald (1982). Currency Substitution and Instability in the World Dollar Standard. The American Economic Review. Vol. 72, No. 3, pp. 320-333.
Cuddington, John (1983). Currency Substitution, Capital Mobility and Money Demand. Journal of International Money and Finance. No. 2, Issue 2, pp. 111-133.
Spinelli, Franco (1983). Currency Substitution, Flexible Exchange Rates, and the Case for International Monetary Cooperation: Discussion of a Recent Proposal. Staff Papers (International Monetary Fund). Vol. 30, No. 4, pp. 755-783.
Thomas, Lee (1985). Portfolio Theory and Currency Substitution. Journal of Money, Credit and Banking. Vol. 17, No. 3, pp. 347-357.
Virén, Matti (1990). McKinnon’s Currency Substitution Hypothesis: Some New Evidence. Bank of Finland Discussion Papers. No. 20/1990.
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Calvo, Guillermo and Végh, Carlos (1992). Currency Substitution in Developing Countries: An Introduction. IMF Working Papers. No. 92/40.
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Yap, Josef (2001). Dollarization: Concepts and Implications for Monetary and Exchange Rate Policy in the Philippines. PIDS Discussion Paper Series. No. 2001-03. Philippine Institute for Development Studies.
De Nicolo, Gianni; Honohan, Patrick; Ize, Alain (2003). Dollarization of the Banking System: Good or Bad? IMF Working Papers. No. 2003/146.
Craig, Ben and Waller, Christopher (2000). Dual-currency Economies as Multiple-payment Systems. Economic Review, Federal Reserve Bank of Cleveland. Issue Q I, pp 2-13.
Feige, Edgar (2003). Dynamics of Currency Substitution, Asset Substitution and De facto Dollarisation and Euroisation in Transition Countries. Comparative Economic Studies, Palgrave Macmillan; Association for Comparative Economic Studies. Vol. 45 (3), pp. 358-383.
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