Reducing Dollarization in the Caucasus and Central Asia

Abstract

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Taming Financial Dollarization: Determinants and Effective Policies – The Case of Uruguay

“…Prudential measures aimed at internalizing the risks of financial dollarization, such as stricter capital requirements against open FX positions, higher provisions for foreign-currency-denominated loans, and the introduction of differentiated capital risk weights on dollar-denominated loans, have also lowered credit dollarization in Bolivia, Paraguay, and Uruguay. More broadly, outside of Latin America, Cakir et al (2022) find additional evidence that such prudential measures have had a similar impact in other Emerging Markets, significantly reducing credit dollarization in Georgia, Kazakhstan, and Kyrgyz Republic. Their results also suggest that higher reserve requirement differentials assisted in de-dollarizing deposits in Armenia, Georgia, and Kyrgyz Republic and de-dollarizing loans in Georgia and Kyrgyz Republic.…”

Two-tier currency system for the member countries of the Organization of Turkic States

“…The dollarization rate of deposits in Uzbekistan at the end of 2020 was more than 49% (CBRU Bulletin, 2021), in Azerbaijan -at the end of the first quarter of 2022 -more than 46.4% (The Central Bank of Azerbaijan, Annual report, 2021), in Kazakhstan -more than 36% by the end of 2021 (The National Bank of Kazakhstan, Annual report, 2021) and in Kyrgyzstan -more than 40.8% by the end of the third quarter of 2022 (The National Bank of Kyrgyzstan, Statistics, 2022). The dynamics of de-dollarization have been on a downward trend over the past decade (Zhang, 2022), and it depends on the level of monetary and foreign exchange policies pursued by countries, the degree of fiscal dominance and the depth of countries' financial markets (Cakir, et al, 2022). In Turkey, the level of all deposits in foreign currencies was over 55% by the end of 2021 (Yalta and Yalta, 2021), and decreased to 49% by October 2022 (CBRT Monetary Developments, October 2022).…”