Currency Substitution

Giovannini, Alberto; Turtelboom, Bart

doi:10.3386/w4232

Cited by 69 publications

(50 citation statements)

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“…Therefore, I only work with strictly positive values of the relevant variables, and set any zero value to missing. 17 19 These data are available at an annual frequency. 20 To assess the robustness of the results to the exchange rate regime classification used, I also estimate (but do not report) the regressions below using the annual regime data constructed by Levy-Yeyati and Sturzenegger (LYS 2000) as an alternative classification.…”

Section: Regulatory Arrangements Datamentioning

confidence: 99%

“…22 Other explanatory variables come from standard sources, such as the Savastano (1992Savastano ( , 1996) is a notable exception. 19 I thank Virgilio Sandoval for kindly providing the new de facto IMF regime data. 20 To further correct errors with the de jure IMF data and make it as close to actual exchange rate behavior as possible, I also reviewed data on frequent and infrequent parity adjusters, first used in Ghosh et al (1997), available until 1996.…”

Section: Regulatory Arrangements Datamentioning

confidence: 99%

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Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Bank Currency Mismatches?

Arteta

2001

SSRN Journal

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The dollarization of bank deposits and credit is widespread in developing countries, resulting in varying degrees of currency mismatches in domestic financial intermediation, which in turn may accentuate balance sheet problems and thus financial fragility. It is widely argued that flexible exchange rate regimes encourage banks to match dollar-denominated liabilities with a corresponding amount of dollar-denominated assets, ameliorating currency mismatches. Does the behavior of dollar deposits and credit in financially dollarized economies support that presumption? A new database on deposit and credit dollarization in developing and transition countries is assembled and used to address this question. Empirical results suggest that, if anything, floating regimes seem to exacerbate, rather than ameliorate, currency mismatches in domestic financial intermediation, as those regimes seem to encourage deposit dollarization more strongly than they encourage matching via credit dollarization.

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Section: Regulatory Arrangements Datamentioning

confidence: 99%

Section: Regulatory Arrangements Datamentioning

confidence: 99%

Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Bank Currency Mismatches?

Arteta

2001

SSRN Journal

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“…Following QMS (2004), the specification for conditional variance in EGARCH model is, 3 An extensive theoretical and empirical literature on currency substitution can be found in Calvo and Végh (1992) and Giovannini and Turtelboom (1992).…”

Section: Methodsmentioning

confidence: 99%

“…Likewise, Selçuk (1997) reveals that the share of foreign balances in the production of money services in Turkey is quite high and that foreign exchange deposits are 1 See Ertuğrul and Selçuk (2002) for an overview of the Turkish economy for the post-1980 period. 2 Giovannini and Turtelboom (1992), Yılmaz (2005) and Civcir (2005) touch on the difference between the terms dollarization and currency substitution in the sense that in high inflation countries foreign currency is first used as a store of value or unit of account representing dollarization and only at the later used as a medium of exchange. That is, currency substitution is the last stage of the dollarization process.…”

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confidence: 99%

Does Currency Substitution Affect Exchange Rate Uncertainty? The Case of Turkey

Saatcioglu,

Bulut,

Korap

2013

SSRN Journal

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“…When will they do the opposite? A large theoretical literature has offered insight centered around arbitrary transaction costs or institutional restrictions on use of monies (see Giovannini and Turtleboom, 1994). We complement it by studying currency use as a result of decentralized and uncoordinated private decisions, absent currency-specific transaction costs and institutional restrictions.…”

Section: Introductionmentioning

confidence: 99%

Currency Competition in a Fundamental Model of Money

Camera¹,

Craig²,

Waller³

2003

Working Paper (Federal Reserve Bank of Cleveland)

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We study how two fiat monies, one safe and one risky, compete in a decentralized trading environment. The equilibrium value of the two currencies, their transaction velocities and agents' spending patterns are endogenously determined. We derive conditions under which agents holding diversified currency portfolios spend the safe currency first and hold the risky one for later purchases. We also examine when the reverse spending pattern is optimal. Traders generally favor dealing in the safe currency, unless trade frictions and the currency risk is low. As risk increases or trading becomes more difficult, the transaction velocity and value of the safe money increases.Key Words: money, currency substitution, search JEL Codes: E4, E5, D7 IntroductionCenturies ago the comedy writer Aristophanes lamented (in "The Frogs") that "the full-bodied coins that are the pride of Athens are never used while the mean brass coins pass hand to hand." Many observers have since debated on the organization of exchange when several monies, some 'superior' to others in some way, compete to sustain trade.A long-held notion is that an inferior currency should circulate more widely than a superior money. Those holding both monies would prefer spending the 'bad' money as soon as they can, and keep the 'good' money for future purchases. Others have favored a differing notion: it is the good currency that should circulate more widely. Hayek (1976) argued that this was the logical outcome of currency competition. People would rather spend the good money first, as it has greater purchasing power, and keep the bad money to face future trade opportunities. 1 These notions are conflicting, yet revolve around rational spending behavior. Thus, a key challenge is to determine what fundamental factors influence the use of competing monies. That is: if two currencies are accepted in trade, when will agents tend to spend the bad and hold the good one for future purchases? When will they do the opposite? A large theoretical literature has offered insight centered around arbitrary transaction costs or institutional restrictions on use of monies (see Giovannini and Turtleboom, 1994). We complement it by studying currency use as a result of decentralized and uncoordinated private decisions, absent currency-specific transaction costs and institutional restrictions.To do so we consider an economic environment in which money is essential to conduct decentralized trade. There are two intrinsically different monies: a 'bad' money characterized by purchasing power risk and a 'good' safe money. Both have explicit medium-of-exchange roles, and their equilibrium values reflect their ability to facilitate spot trades of consumption goods. This is formalized by modeling trade as a random search process among agents specialized in production/consumption. They hold currency portfolios to buy goods via pairwise trades where prices are determined via bilateral bargaining. In this context currencies compete on a 'level' trading field as currency-specific trade barriers,...

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Currency Substitution

Cited by 69 publications

References 0 publications

Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Bank Currency Mismatches?

Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Bank Currency Mismatches?

Does Currency Substitution Affect Exchange Rate Uncertainty? The Case of Turkey

Currency Competition in a Fundamental Model of Money

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