Working Paper

Financial Dollarization and Currency Substitution. An Empirical Study for Bolivia

ASP Working Paper Series

The Bolivian puzzle is high and persistent financial dollarization notwithstanding deep
macroeconomic stabilization that achieved stable and low inflation and the regulations
encouraging domestic currency deposits. We analyze traditional and new approaches to
explain dollarization in Bolivia. We first assess the currency substitution approach and then
assess the empirical evidence for the financial dollarization approach. The results show that
the macroeconomic variables capture only partially the phenomenon and a better assessment
relies on other explanations such as the peso problem and the analysis of specific
characteristics of the financial markets in Bolivia. 

Authors

Salvatore Dell’Erba
Martin Saldías Zambrana

Info

Publication Date
JEL Classification
E44, E59, G19