This article overviews the background for financial dollarization in Ukraine. We apply quantitative techniques including both minimum variance portfolio and peer comparison taking into consideration country-specific characteristics to derive an estimated natural dollarization level for Ukraine. The study also discusses potential ways for Ukraine to converge to its natural level, which we estimate at 20%. Additional factors indicate dollarization in the range of 20-30% as realistic medium-term policy goal.
This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper reviews the experiences of a number of European countries in coping with capital inflows. It describes the nature of the inflows, their implications for macroeconomic and financial stability, and the policy responses used to cope with them. The experiences suggest that as countries become more integrated with international financial markets, there is little room to regulate capital flows effectively. The most effective ways to deal with capital inflows would be to deepen the financial markets, strengthen financial system supervision and regulation, where needed, and improve the capacity to design and implement sound macroeconomic and financial sector policies. These actions will help increase the absorption capacity and resilience of the economies and financial systems to the risks associated with the inflows.
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