Determinants of Currency Substitution in Southeast European Countries

Abstract

Currency substitution is widespread in less developed countries. Since it increases financial vulnerability and limits the effectiveness of monetary policy, it is often in the focus of scientists and experts. In this paper, we analyze the importance of euroization determinants in Serbia and neighboring countries -Albania, Bosnia and Herzegovina, FYR Macedonia, Romania and Croatia for the period 2003-2014. We examine the impact of domestic inflation, nominal exchange rate of the domestic currency against the euro, interest rate spread on domestic and foreign currency, foreign currency inflow in the form of foreign direct investments and exports, as well as the euroization of banks'financial resources on the degree of loan euroization. The results obtained by multiple regression panel methods confirm the statistical significance and assumed direction of the influence of all analyzed variables except inflation and current account balance.

Asymmetric Effect of Exchange Rate on Deposit Dollarization

“…Analizin kısa dönem olması sebebiyle bu oranın küçümsenecek bir oran olmadığı ifade edilmiştir. Pepic, Marinkovic, Radovic, ve Malovic (2015), 6 Güneydoğu Avrupa ülkesi (Sırbistan, Arnavutluk, Bosna Hersek, Makedonya, Romanya ve Hırvatistan) üzerinde para ikamesinin belirleyicilerini araştırdıkları çalışmalarında, enflasyon, nominal döviz kuru, ulusal ve yabancı para faiz oranı farkı, cari işlemler dengesi, doğrudan yabancı yatırımlar gibi açıklayıcı değişkenler kullanmışlardır. Söz konusu ülke ekonomileri için 2003-2014 dönemini kapsayan çalışmada çoklu regresyon panel veri analizi yapılmıştır.…”

Extending the determinants of currency substitution in Nigeria: Any role for financial innovation?

“…Due to the absence of reliable measure of foreign currency in circulation, most empirical studies use FCD and ratio of FCD to domestic currency as proxies of currency substitution (Dabús et al, 2016;Krupkina & Ponomarenko, 2017;Pepi c et al, 2015;Selcuk, 2003;S ¸ıklar et al, 2017). We use two measures of currency substitution.…”

How Does Corruption Affect Currency Substitution? Evidence from Nigeria

“…Currency substitution primarily arises from the loss of confidence in a national currency by economic agents due to prolong periods of macroeconomic instability characterised by high inflation rates and sudden depreciation of the national currency with frequent and massive interventions in the foreign exchange market (Pepic et al, 2015). Perhaps the central argument for currency substitution is that it could serve as a protection for banks, which tie their investment to the foreign currency to preserve the real value of their loans.…”

“…These factors are both macro and institutional. The macroeconomic factors include exchange rate, changes in inflation expectation, interest rate (Milenkovic and Davidovic, 2013; Pepic et al, 2015). The institutional factors include political violence, conflicts, corruption, among others.…”