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"Unlike the financial dollarization (FD) of external liabilities, the dollarization of domestic financial assets (domestic FD) has received comparatively less attention until very recently, when it has been increasingly seen as a key source of balance sheet exposure. This paper focuses on a complementary and often overlooked angle of domestic FD: the limit it imposes on the central bank as domestic lender of last resort, and the resulting exposure to dollar liquidity runs. The paper discusses the incidence of FD on banking crisis propensity, shows that FD has been an important motive for self insurance in the form of international reserves, and highlights the moral hazard associated with centralized reserve accumulation. Next, it illustrates the authorities' belated recourse to suspension of convertibility in two recent banking crises (Argentina 2001 and Uruguay 2002). Finally, it argues for a combined scheme of decentralized reserves (liquid asset requirements on individual banks) to limit moral hazard, and an ex ante suspension of convertibility clause ("circuit breakers") to reduce self insurance costs while limiting bank losses in the event of a run"--National Bureau of Economic Research web site.
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DollarizationShowing 1 featured edition. View all 1 editions?
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Liquidity insurance in a financially dollarized economy
2006, National Bureau of Economic Research
Electronic resource
in English
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Book Details
Edition Notes
Title from PDF file as viewed on 6/28/2006.
Includes bibliographical references.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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- Created September 24, 2008
- 5 revisions
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December 17, 2020 | Edited by MARC Bot | import existing book |
July 31, 2012 | Edited by VacuumBot | Updated format '[electronic resource] /' to 'Electronic resource' |
December 15, 2009 | Edited by WorkBot | link works |
October 28, 2008 | Edited by ImportBot | Found a matching Library of Congress MARC record |
September 24, 2008 | Created by ImportBot | Imported from Library of Congress MARC record |