on dollarization

11
Economics of Transition Volume 10 (2) 2002, 393–403 2QGROODUL]DWLRQ *XLOOHUPR$&DOYR University of Maryland and Chief Economist of the Inter-American Development Bank. Department of Economics, University of Maryland, 4118 Tydings Hall, College Park, MD 20742-7211, USA. E-mail: [email protected] $EVWUDFW

Upload: columbia

Post on 02-May-2023

1 views

Category:

Documents


0 download

TRANSCRIPT

Economics of Transition Volume 10 (2) 2002, 393–403

� 7KH (XURSHDQ %DQN IRU 5HFRQVWUXFWLRQ DQG 'HYHORSPHQW� �����3XEOLVKHG E\ %ODFNZHOO 3XEOLVKHUV� ��� &RZOH\ 5RDG� 2[IRUG 2;� �-)� 8. DQG ��� 0DLQ 6WUHHW� 0DOGHQ� 0$ ������ 86$�

2Q�GROODUL]DWLRQ�

*XLOOHUPR�$��&DOYR�

University of Maryland and Chief Economist of the Inter-American Development Bank. Department of Economics, University of Maryland, 4118 Tydings Hall, College Park, MD 20742-7211, USA. E-mail: [email protected]

$EVWUDFW�

7KH SDSHU H[DPLQHV WKH FDVH IRU GROODUL]DWLRQ LQ HPHUJLQJ PDUNHW HFRQRPLHV� ,W LVFODLPHG WKDW GROODUL]DWLRQ EHFRPHV DQ DWWUDFWLYH PRQHWDU\ UHJLPH ZKHQ DFFRXQWLV WDNHQ RI UHFHQW ILQDQFLDO WXUPRLO LQ VXFK HFRQRPLHV� 7KH FDVH LV IXUWKHUVWUHQJWKHQHG E\ WKH IDFW WKDW WKHVH HFRQRPLHV KDYH D SHQFKDQW IRU DFTXLULQJGROODU GHEWV �L�H�� OLDELOLW\ GROODUL]DWLRQ�� +RZHYHU� H[FKDQJH UDWH PLVDOLJQPHQWDQG GHIODWLRQ DUH SRWHQWLDOO\ VHULRXV SUREOHPV� XQOHVV DSSURSULDWH ILVFDO DQGSXEOLF VHFWRU SULFHV SROLFLHV DUH LPSOHPHQWHG� LQ DGGLWLRQ WR HVWDEOLVKLQJ DILQDQFLDO VHFWRU ZKRVH DVVHWV DQG OLDELOLWLHV IDFH SDUDOOHO UHODWLYH SULFH ULVNV�

-(/ FODVVLILFDWLRQ� )��� )���

.H\ZRUGV� H[FKDQJH UDWH� ILQDQFLDO FULVHV� HPHUJLQJ PDUNHW HFRQRPLHV�

� , DP JUDWHIXO WR 6DUD &DOYR� &DUPHQ 5HLQKDUW DQG DQ DQRQ\PRXV UHIHUHH IRU PDQ\ XVHIXO FRPPHQWV�9LHZV H[SUHVVHG KHUH DUH WKRVH RI WKH DXWKRU DQG GR QRW QHFHVVDULO\ UHIOHFW WKRVH RI DQ\ LQVWLWXWLRQ ZLWKZKLFK WKH DXWKRU LV RU KDV EHHQ DVVRFLDWHG�

CALVO ���

���,QWURGXFWLRQ�

5HFHQW ZRUOGZLGH WXUPRLO LQ ILQDQFLDO PDUNHWV LV WULJJHULQJ D PDMRU UHYLVLRQ RIWKH FRQYHQWLRQDO ZLVGRP DERXW (PHUJLQJ 0DUNHW �(0� FRXQWULHV· PDFURHFRQRPLFPDQDJHPHQW� $V D UHVXOW� WKH GHEDWH LV ZLGH RSHQ DV WR WKH VHW RI SROLFLHV DQGLQVWLWXWLRQDO DUUDQJHPHQWV WKDW ZRXOG HQVXUH (0 PDFURHFRQRPLF VWDELOLW\�2SLQLRQV UDQJH IURP WKRVH IDYRXULQJ IXUWKHU SXUVXLW RI PDUNHW�IULHQGO\ UHIRUPVWR FRQWUROV RQ FDSLWDO PRELOLW\ DQG HYHQ WUDGH� DQG IURP GROODUL]DWLRQ WR IORDWLQJH[FKDQJH UDWHV� 7KH GHEDWH RQ WKH DSSURSULDWH H[FKDQJH UDWH V\VWHP� LQ SDUWLFXODU�KDV WDNHQ FHQWUH�VWDJH�

7KH ���� $VLD FULVLV �ZKLFK VHULRXVO\ HQJXOIHG� DOWKRXJK GLG QRW WRSSOH +RQJ.RQJ� UDLVHG VHULRXV TXHVWLRQV DERXW FRQYHQWLRQDO FULVLV H[SODQDWLRQV �H�J��FXUUHQW DFFRXQW DQG ILVFDO GHILFLWV� ORZ VDYLQJ UDWHV� DQG OHG WR D QRWLFHDEOH VKLIWRI ILQDQFLDO DQDO\VWV· RSLQLRQ WRZDUGV IDYRXULQJ IORDWLQJ H[FKDQJH UDWHV� 7KLVIROORZHG IURP WKH REVHUYDWLRQ WKDW DOO FULVLV HFRQRPLHV KDG GLVSOD\HG VRPHGHJUHH RI H[FKDQJH UDWH ULJLGLW\� ,QWHUHVWLQJO\� KRZHYHU� (0V· SROLF\�PDNHUV KDYHQRW EHHQ IXOO\ VZD\HG E\ WKH DUJXPHQW DQG KDYH FRQWLQXHG SHJJLQJ WKHLUFXUUHQFLHV WR WKH 86 GROODU RU WKH *HUPDQ 0DUN� (YHQ VHOI�GHFODUHG IORDWHUV KDYH�RQ RFFDVLRQ� LQWHUYHQHG WR OLPLW IRUHLJQ H[FKDQJH UDWH J\UDWLRQV�� 7R WRS LW RII�$UJHQWLQD·V 3UHVLGHQW 0HQHP LQ ���� UDLVHG WKH VWDNHV HYHQ IXUWKHU E\ SURSRVLQJD GROODUL]DWLRQ SODQ DFFRUGLQJ WR ZKLFK WKH SHVR ZRXOG EH IXOO\ UHSODFHG E\ WKH86 GROODU� DFFRPSDQLHG E\ D PRQHWDU\ WUHDW\ ZLWK WKH 86 E\ ZKLFK� DPRQJ RWKHUWKLQJV� WKH WZR FRXQWULHV ZRXOG VKDUH $UJHQWLQD·V VHLJQLRUDJH�

$UJHQWLQD·V SODQ ZDV DQ DWWHPSW WR ¶VHSDUDWH· LWV HFRQRP\ IURP RWKHU (0V�HVSHFLDOO\ %UD]LO�� 7KH EDVLF LGHD ZDV WKDW E\ HOLPLQDWLQJ FXUUHQF\ ULVN�LQGLYLGXDOV ZRXOG EH EHWWHU DEOH WR DVVHVV LQYHVWPHQW SURMHFWV� WKHUHE\ ORZHULQJFRXQWU\ ULVN DQG KHOSLQJ WR GLVFRQQHFW $UJHQWLQD IURP WKH UHVW RI (0V� 6RPH RIWKH LGHDV DUH IDPLOLDU IURP WKH RSWLPXP FXUUHQF\ DUHD �2&$� OLWHUDWXUH �VHH� H�J��'H *UDXZH� ������ EXW RWKHUV KDYH D GLVWLQFWLYH ULQJ DERXW WKHP� )RU H[DPSOH�VLQFH WKH GROODUL]DWLRQ SURMHFW ZDV SDUWO\ D UHVSRQVH WR ILQDQFLDO WXUPRLO� EDQNV�WKH ILQDQFLDO VHFWRU DQG WKH FDSLWDO DFFRXQW �RI WKH EDODQFH RI SD\PHQWV� ZHUHFHQWUDO FRQVLGHUDWLRQV EHKLQG WKH SODQ� ,Q FRQWUDVW� 2&$ OLWHUDWXUH KDV OLWWOH WR VD\DERXW ILQDQFLDO LVVXHV�� 7KLV SDSHU ZLOO DWWHPSW WR ILOO WKDW JDS� DQG VKRZ WKDW WKHSUR�GROODUL]DWLRQ SRVLWLRQ LV VWURQJHU WKDQ LW ZRXOG VHHP RWKHUZLVH�

%HIRUH VWDUWLQJ WKH VXEVWDQWLYH GLVFXVVLRQ� D IHZ ZRUGV DERXW GHILQLWLRQV DUH LQRUGHU� , ZLOO VD\ WKDW D FRXQWU\ LV SDUWLDOO\ GROODUL]HG LI D IRUHLJQ FXUUHQF\ �KHUHRQLGHQWLILHG ZLWK WKH 86 GROODU� LV XVHG LQ DQ\ RI WKH WKUHH FODVVLFDO UROHV RI PRQH\�L�H�� DV D XQLW RI DFFRXQW� PHDQV RI SD\PHQWV� RU VWRUH RI YDOXH� WKH PRVW UHOHYDQW

� ,W LV ZRUWK SRLQWLQJ RXW WKDW WKHUH LV KDUGO\ D FDVH WKDW UHVHPEOHV WKH WH[WERRN GHILQLWLRQ RI IORDWLQJH[FKDQJH UDWHV� LQ ZKLFK PRQH\ VXSSO\ LV VHW LQ FRPSOHWH REOLYLRQ RI WKH QRPLQDO H[FKDQJH UDWH� 6HH &DOYRDQG 5HLQKDUW �������� )RU H[DPSOH� WKH 6XEMHFW ,QGH[ LQ 'H *UDXZH ������ GRHV QRW FRQWDLQ WKH ZRUG ¶ILQDQFLDO�· DQG WKH WH[WGRHV QRW GLVFXVV DQ\ ILQDQFLDO LPSOLFDWLRQ RI 2&$V RU DOWHUQDWLYH IRUHLJQ H[FKDQJH V\VWHPV�

ON DOLLARIZATION ���

EHLQJ WKH ILUVW WZR� +RZHYHU� WKLV GHILQLWLRQ LV QRW YHU\ XVHIXO EHFDXVH PRVWFRXQWULHV DUH DOUHDG\ SDUWLDOO\ GROODUL]HG �LI QRW RQ WKH DVVHW VLGH� H�J�� EDQNGHSRVLWV� WKHQ RQ WKH OLDELOLW\ VLGH�� 7KXV� WKH VXEWH[W LV WKDW GROODUL]DWLRQ�DOWKRXJK SDUWLDO� LV KLJKO\ SUHYDOHQW� ([DPSOHV DUH $UJHQWLQD� %ROLYLD� 3HUX� DQG7XUNH\ ZKHUH GROODU GHSRVLWV H[FHHG �� SHUFHQW RI WKH WRWDO�� 0HQHP·V SURSRVDOFRUUHVSRQGV WR ZKDW , ZLOO FDOO IXOO GROODUL]DWLRQ� WKH VLWXDWLRQ LQ ZKLFK WKH FRXQWU\FRPSOHWHO\ DEDQGRQV WKH XVH RI LWV RZQ PRQH\ �KHUHRQ LGHQWLILHG ZLWK WKH SHVR��H[FHSW SHUKDSV IRU VPDOO FKDQJH� DV 3DQDPD·V %DOERD�

7KH SDSHU LV RUJDQL]HG DV IROORZV� 6HFWLRQ � ZLOO GLVFXVV LQLWLDO FRQGLWLRQV WKDWFKDUDFWHUL]H D W\SLFDO (0� DQG ZLOO EH HVVHQWLDO EDFNJURXQG PDWHULDO IRU UHSO\LQJWR GROODUL]DWLRQ FULWLFV LQ 6HFWLRQ �� 6HFWLRQ � ZLOO VWXG\ WKH UDWLRQDOH IRU WKHH[LVWHQFH RI OLDELOLW\ GROODUL]DWLRQ HYHQ LQ D FRQWH[W RI IOH[LEOH H[FKDQJH UDWHV�ZKLFK� DV ZLOO EH DUJXHG� LV D NH\ FKDUDFWHULVWLF RI (0V DQG KDV EHHQ WRWDOO\LJQRUHG E\ WKH 2&$ OLWHUDWXUH� 6HFWLRQ � FRQFOXGHV�

���,QLWLDO�FRQGLWLRQV�

$ JUHDW GHDO RI FRQIXVLRQ ZLOO EH DYRLGHG LQ WKLV GHEDWH LI LQLWLDO FRQGLWLRQV DUHZHOO XQGHUVWRRG� 7\SLFDOO\� (0V VWDUW IURP D VLWXDWLRQ LQ ZKLFK D ODUJH VKDUH RIWKHLU DVVHWV RU OLDELOLWLHV LV GHQRPLQDWHG LQ IRUHLJQ H[FKDQJH� 7KXV� D GLVFXVVLRQ RIWKH GROODUL]DWLRQ LVVXH WKDW LJQRUHV WKLV IDFW �DV LV WKH UXOH LQ WKH 2&$ OLWHUDWXUH�DQG� VD\� HQGV XS IDYRXULQJ QR GROODUL]DWLRQ� LV QRW RQO\ YRWLQJ DJDLQVW DGRSWLQJ DIRUHLJQ FXUUHQF\ EXW LW LV DOVR YRWLQJ IRU GH�GROODUL]DWLRQ� L�H�� GLVPDQWOLQJ WKHLQVWLWXWLRQV DQG ODZV WKDW SHUPLW WKH XVH RI IRUHLJQ H[FKDQJH� , KDYH IRXQG WKDWWKLV LPSOLFDWLRQ LV IUHTXHQWO\ PLVVHG E\ WKH FULWLFV RI GROODUL]DWLRQ� ,W LV WKHUHIRUHZRUWK VSHQGLQJ VRPH WLPH GLVFXVVLQJ LQLWLDO FRQGLWLRQV ZKLFK DUH UHOHYDQW IRU (0V�SDUWLFXODUO\ WKRVH WKDW DUH VLJQLILFDQWO\ GLIIHUHQW IURP DGYDQFHG FRXQWULHV� ,Q WKLVVHFWLRQ , ZLOO KLJKOLJKW WZR ZKLFK VHHP HVSHFLDOO\ UHOHYDQW� ��� WKH UROH RI H[WHUQDOIDFWRUV DQG ��� SDUWLDO GROODUL]DWLRQ�

2.1 External factors

6HYHUDO VWXGLHV KDYH VKRZQ WKDW (0V DUH KLJKO\ YXOQHUDEOH WR H[WHUQDO IDFWRUV�7KLV ZDV HVWDEOLVKHG LQ &DOYR� /HLGHUPDQ DQG 5HLQKDUW ������ IRU VHYHUDO NH\/DWLQ $PHULFDQ FRXQWULHV� 7KH SDSHU VKRZV WKDW� IRU WKH ZKROH VDPSOH� 86YDULDEOHV OLNH LQWHUHVW UDWHV DQG WKH EXVLQHVV F\FOH H[SODLQ RQ DYHUDJH URXJKO\ ��SHUFHQW RI WKH YDULDQFH RI YDULDEOHV VXFK DV WKH UHDO H[FKDQJH UDWH DQGLQWHUQDWLRQDO UHVHUYH DFFXPXODWLRQ� 5HVXOWV GLIIHU DFURVV FRXQWULHV EXW H[WHUQDO

� :KHQ IRUHLJQ PRQH\ LV XVHG DV PHDQV RI SD\PHQWV� LQ DGGLWLRQ WR GRPHVWLF PRQH\� WKH FDVH LVFXVWRPDULO\ FDOOHG ¶FXUUHQF\ VXEVWLWXWLRQ�· &6� 7KHUH H[LVWV D ODUJH OLWHUDWXUH RQ &6� VHH &DOYR ������&KDSWHU �� DQG ,0) �������

CALVO ���

IDFWRUV DUH VKRZQ WR EH VLJQLILFDQW IRU HYHU\ FRXQWU\ LQ WKH VDPSOH�� ,QWHUHVWLQJO\�FRXQWULHV LQ WKH VDPSOH GLVSOD\HG GLIIHUHQW H[FKDQJH UDWH V\VWHPV DQG SROLWLFDOFRQGLWLRQV �WKXV� IRU H[DPSOH� LQ WKH VDPSOH SHULRG 3HUX ZDV EHLQJ UDYDJHG E\6KLQLQJ 3DWK� WKH JXHUULOOD JURXS� ZKLOH PRVW RI WKH RWKHU FRXQWULHV HQMR\HGSHDFHIXO DQG GHPRFUDWLF V\VWHPV�� 7KLV VXJJHVWV WKDW 86 PRQHWDU\ SROLF\� IRULQVWDQFH� KDV DQ HIIHFW RQ (0V LQGHSHQGHQWO\ RI WKHLU IRUHLJQ H[FKDQJH DQGSROLWLFDO UHJLPHV� 7KLV LV DQ LPSRUWDQW REVHUYDWLRQ EHFDXVH D OHDGLQJ FULWLFLVP RIGROODUL]DWLRQ LV WKDW LW H[SRVHV (0V WR WKH PRQHWDU\ SROLF\ RI WKH FRXQWU\ ZKRVHFXUUHQF\ WKH\ DGRSW �KHUHRQ LGHQWLILHG ZLWK WKH 86��

7KH ILQGLQJ WKDW H[WHUQDO IDFWRUV ZHUH LPSRUWDQW IRU /DWLQ $PHULFD FDPH DV DQXQSOHDVDQW VKRFN WR PXOWLODWHUDO LQVWLWXWLRQV EHFDXVH WKH FRQYHQWLRQDO ZLVGRPZDV WKDW HFRQRPLF SHUIRUPDQFH LV ODUJHO\ GHWHUPLQHG E\ GRPHVWLF SROLF\�6XEVHTXHQW HYHQWV GURYH WKLV OHVVRQ KRPH LQ HYHQ PRUH EUXWDO DQG XQH[SHFWHGZD\V� DV WKH SKHQRPHQRQ RI ¶FRQWDJLRQ·² DQ H[WHUQDO IDFWRU ODUJHO\ XQUHODWHG WRVWDQGDUG ¶IXQGDPHQWDOV·² DSSHDUHG RQ WKH KRUL]RQ LQ FRQQHFWLRQ ZLWK WKH 7HTXLODFULVLV �DVVRFLDWHG ZLWK 0H[LFR·V ������ %23 FULVLV�� $UJHQWLQD� IRU H[DPSOH� JRWVHYHUHO\ KLW GHVSLWH EDUHO\ WUDGLQJ ZLWK 0H[LFR LQ JRRGV RU ILQDQFLDO DVVHWV� ,Q���� $UJHQWLQD·V RXWSXW IHOO E\ PRUH WKDQ � SHUFHQW DQG XQHPSOR\PHQW URVH IURP�� WR �� SHUFHQW LQ D PDWWHU RI PRQWKV �WKDW LV ZK\ WKH ZRUG FRQWDJLRQ YLUWXDOO\OHDSV XS WR RQH·V OLSV�� $ VLPLODU SKHQRPHQRQ WRRN SODFH LQ ,QGRQHVLD IROORZLQJWKH 7KDL FULVLV��

:KDW H[SODLQV FRQWDJLRQ" 7KH OHDGLQJ H[SODQDWLRQ LV LPSHUIHFW LQIRUPDWLRQ�HVSHFLDOO\ LQIRUPDWLRQ DERXW WKH PDFURHFRQRP\ DQG WKH ILQDQFLDO VHFWRU� 7KHUHDUH VHYHUDO UHDVRQV EHKLQG LPSHUIHFW LQIRUPDWLRQ� EXW , ZLOO KLJKOLJKW WKUHH WKDWVHHP HVSHFLDOO\ LPSRUWDQW� ��� VKRUW WUDFN UHFRUGV �HVSHFLDOO\ LQ /DWLQ $PHULFD����� KLJK JRYHUQPHQW LQWHUYHQWLRQ �HVSHFLDOO\ LQ $VLD�� DQG ��� VL]H� , ZLOO GLVFXVVHDFK RQH LQ WXUQ�

(1) Short track records 6HYHUDO (0V KDYH HPEDUNHG RQ PDUNHW�IULHQGO\ UHIRUPV EXW WKH SROLWLFDO V\VWHPVWKDW KHOSHG WR ODXQFK WKHP DUH UHODWLYHO\ QHZ� DQG WKHLU VXVWDLQDELOLW\ RSHQ WRTXHVWLRQ� 7KHVH UHIRUPV KDYH ODUJHO\ EHHQ XQGHUWDNHQ GXULQJ D FDSLWDO�LQIORZHSLVRGH LQ ZKLFK EXGJHW FRQVWUDLQWV ZHUH FRQVLGHUDEO\ UHOD[HG� ,W LV VWLOO XQFOHDUZKHWKHU WKH\ ZLOO EH VXVWDLQDEOH GXULQJ D SURWUDFWHG GRZQWXUQ� IRU H[DPSOH�7KXV� (0V UHTXLUH PRUH IUHTXHQW PRQLWRULQJ WKDQ DGYDQFHG� PRUH VWDEOH�HFRQRPLHV� +LJK PRQLWRULQJ FRVWV� LQ WXUQ� OHDG WR OHVV LQIRUPDWLRQ JDWKHULQJ��

� 7KHVH UHVXOWV KDYH EHHQ UHSOLFDWHG E\ RWKHU UHVHDUFKHUV� 6HH� IRU H[DPSOH� &KXKDQ� &ODHVVHQV DQG0DPLQJL ������� 'RROH\� )HUQDQGH]�$ULDV DQG .OHW]HU ������� )HUQDQGH]�$ULDV ������� DQG (LFKHQJUHHQ DQG0RG\ �������� 7KH ILUVW LQWHUQDWLRQDO FRQWDJLRQ SDSHU LV &DOYR DQG 5HLQKDUW ������� 6HH DOVR .DPLQVN\ DQG 5HLQKDUW�������� %HVLGHV� VLQFH PRQLWRULQJ FRVWV DUH OLNHO\ WR FRQWDLQ D VLJQLILFDQW VKDUH RI IL[HG FRVWV �H�J�� PDFURHFRQRPLFDQDO\VLV FDQQRW EH FRQILQHG WR D VHFWRU RI WKH HFRQRP\� DQG PXVW WDNH LQWR DFFRXQW QDWLRQDO SROLWLFDOFRQVLGHUDWLRQV�� WKHUH DUH HFRQRPLHV RI VFDOH LQ LQIRUPDWLRQ JDWKHULQJ� ZKLFK QDWXUDOO\ OHDG WR WKH FUHDWLRQ

ON DOLLARIZATION ���

(2) High government intervention 7KLV DSSOLHV HVSHFLDOO\ WR $VLD EHFDXVH� DV VKRZQ LQ :RUOG %DQN ������� WKHLUVSHFWDFXODU JURZWK ZDV ODUJHO\ VKHSKHUGHG E\ DFWLYH JRYHUQPHQW SROLF\�+RZHYHU� DV WKHLU JRYHUQPHQWV SURYHG LQFDSDEOH RI IRUHVWDOOLQJ HFRQRPLFFROODSVH LQ ����� SUHYLRXV FHUWDLQWLHV ZHUH UHSODFHG E\ D VHD RI XQFHUWDLQW\� :LOOSUHYLRXV UHJLPHV EH UHFRQVWLWXWHG" +RZ" :LOO WKHVH FRXQWULHV PRYH WR D PRUHFDSLWDOLVW GHFHQWUDOL]HG RUJDQL]DWLRQ DQG LI VR� KRZ" 7KHVH DUH YHU\ ODUJHTXHVWLRQV IRU ZKLFK QR DQDO\VW KDV D UHDOO\ JRRG DQVZHU� 7KHUHIRUH� HYHU\ QHZSLHFH RI LQIRUPDWLRQ FRXQWV� DQG SUHYLRXVO\ ZHOO�UXQ HFRQRPLHV OLNH WKRVH LQ $VLDEHFRPH ¶REVHUYDWLRQDOO\ HTXLYDOHQW· WR /DWLQ $PHULFDQ FRXQWULHV ZKHUHXQFHUWDLQWLHV GHULYH IURP VKRUW WUDFN UHFRUGV�

(3) Size 7KH FRVW RI OHDUQLQJ DERXW PDFUR YDULDEOHV RI D JLYHQ FRXQWU\ LV� WR D ODUJH H[WHQW�LQGHSHQGHQW RI VL]H� ZKLOH WKH H[SHFWHG UHWXUQ IURP LQIRUPDWLRQ JDWKHULQJ LVOLNHO\ WR EH DQ LQFUHDVLQJ IXQFWLRQ RI VL]H� %HVLGHV� LW FRXOG EH DUJXHG WKDW VL]H LVQHJDWLYHO\ FRUUHODWHG ZLWK YRODWLOLW\� PDNLQJ PDFURHFRQRPLF DQDO\VLV PRUHHIIHFWLYH LQ ODUJH FRXQWULHV� $V D UHVXOW� VPDOO FRXQWULHV WKDW UXQ DQ LQGHSHQGHQWPDFURHFRQRPLF SROLF\ PD\ EH H[FHVVLYHO\ FRVWO\ WR PRQLWRU E\ ILQDQFLDO DQDO\VWV�

3RLQW ��� GLUHFWO\ FRQQHFWV ZLWK WKH FHQWUDO WKHPH RI WKH SUHVHQW SDSHU�'ROODUL]DWLRQ PD\ HIIHFWLYHO\ LQFUHDVH WKH VL]H RI D JLYHQ FRXQWU\ EHFDXVH LWVPRQHWDU\ SROLF\ ZRXOG MXVW EH WKDW RI WKH 86� D ODUJH FRXQWU\� 7UXH� RWKHU SROLFLHVPLJKW VWLOO EH FRQGLWLRQHG E\ ORFDO IDFWRUV EXW� XQOHVV RQH FDQ DUJXH WKDW WKHVHRWKHU SROLFLHV WRWDOO\ UHSODFH WKH IXQFWLRQ RI PRQHWDU\ SROLF\� GROODUL]DWLRQ VKRXOGUHVXOW LQ ORZHU XQFHUWDLQW\ DQG JUHDWHU LQFHQWLYHV WR OHDUQ DERXW WKH GROODUL]HGFRXQWU\·V VSHFLILF FRQGLWLRQV� 3RLQWV ��� DQG ��� \LHOG VLPLODU LPSOLFDWLRQV EHFDXVHGROODUL]DWLRQ²HVSHFLDOO\ LI FDUULHG RXW LQ WKH FRQWH[W RI D 7UHDW\ ZLWK WKH 86²LQFUHDVHV ERWK WKH SUHGLFWDELOLW\ DQG FUHGLELOLW\ RI PRQHWDU\ SROLF\�

���'ROODUL]DWLRQ��UHSO\�WR�FULWLFV�

,Q WKLV VHFWLRQ , ZLOO SUHVHQW� DQG RIIHU SRVVLEOH DQVZHUV WR� WKH PDLQ FULWLFLVPVUDLVHG DJDLQVW GROODUL]DWLRQ� , ZLOO GLVFXVV WKUHH RI WKHVH FULWLFLVPV� ��� H[LVWHQFH RIDV\PPHWULF VKRFNV� ��� DEVHQFH RI D OHQGHU RI ODVW UHVRUW� /2/5� DQG ��� GHEWGHIODWLRQ�

3.1 Asymmetric shocks 7KLV LV D VWDQGDUG DUJXPHQW DJDLQVW IL[HG H[FKDQJH UDWHV� ILUVW UDLVHG LQ0XQGHOO ������� /HW XV UHDOLVWLFDOO\ DVVXPH WKDW 86 PRQHWDU\ SROLF\ GRHV QRW WDNH

RI VSHFLDOLVW FOXVWHUV DURXQG ZKLFK VZDUP D PXOWLWXGH RI XQLQIRUPHG LQYHVWRUV� )RU D GLVFXVVLRQ RI WKLVSKHQRPHQRQ� VHH &DOYR �����D� ����D��

CALVO ���

LQWR DFFRXQW WKH EXVLQHVV F\FOH LQ WKH IXOO\ GROODUL]HG FRXQWU\� &RQVLGHU D VKRFNWKDW FDOOV IRU D GHSUHFLDWLRQ RI WKH UHDO H[FKDQJH UDWH LQ WKH GROODUL]HG FRXQWU\ EXWWKDW KDV QR HIIHFW LQ WKH 86� 8QGHU WKHVH DVVXPSWLRQV� 86 PRQHWDU\ SROLF\ ZLOOQRW FKDQJH DQG� WKXV� UHDO GHSUHFLDWLRQ ZLOO FDOO IRU D ORZHU SULFH OHYHO LQ WKHGROODUL]HG FRXQWU\� 7KXV� LI SULFHV�ZDJHV DUH GRZQZDUG LQIOH[LEOH� KLJKHUXQHPSOR\PHQW DQG�RU FDSDFLW\ XQGHUXWLOL]DWLRQ PD\ UHVXOW� D VLWXDWLRQ WKDWPLJKW EH DYRLGHG LI WKH GROODUL]HG FRXQWU\ FRQGXFWHG LWV RZQ PRQHWDU\ SROLF\�DQG GHYDOXHG LQ QRPLQDO WHUPV��

7KHUH DUH VHYHUDO ZD\V LQ ZKLFK WKLV FULWLFLVP FDQ EH DQVZHUHG� /HW XV VWDUWZLWK DQ HPSLULFDO REVHUYDWLRQ� GHYDOXDWLRQV LQ /DWLQ $PHULFD KDYH EHHQFRQWUDFWLRQDU\ �VHH (GZDUGV� ����� DQG LQ UHFHQW FULVHV PRVW FRXQWULHV KDYH JRQHWKURXJK UHFHVVLRQ� QR PDWWHU KRZ PXFK WKH FXUUHQF\ ZDV GHYDOXHG �DQ H[FHSWLRQLV %UD]LO� ������ 0RUHRYHU� GHYDOXDWLRQV LQ (0V DUH W\SLFDOO\ DFFRPSDQLHG E\ KLJKLQWHUHVW UDWHV� RFFDVLRQDOO\ IXOO\ RIIVHWWLQJ WKH FRPSHWLWLYH HGJH SURYLGHG E\GHYDOXDWLRQ�

'HYDOXDWLRQ LV HVSHFLDOO\ XVHOHVV ZKHQ WKH VKRFN FRPHV IURP WKH FDSLWDO DFFRXQW�RI WKH EDODQFH RI SD\PHQWV�� DV ZKHQ (0V DUH KLW E\ FRQWDJLRQ DQG IDFH VKDUSO\KLJKHU LQWHUHVW UDWHV�� ,Q WKLV LQVWDQFH� WKH VKRFN ZRXOG EH HVVHQWLDOO\ QRQ�PRQHWDU\� <HW� LW FRXOG SRVVLEO\ EH DUJXHG WKDW D GHYDOXDWLRQ PLJKW VWLOO KHOS WRJHW WKH HFRQRP\ WR WKH QHZ HTXLOLEULXP PRUH TXLFNO\ DQG� SUHVXPDEO\� ZLWKPLQLPXP VRFLDO FRVW� +RZHYHU� WKH DUJXPHQW LV VHULRXVO\ IODZHG RU DW OHDVWLQFRPSOHWH IRU HFRQRPLHV ZKHUH ILUPV KDYH GROODU OLDELOLWLHV �D FRPPRQSKHQRPHQRQ LQ (0V ZLWK FXUUHQW DFFRXQW GHILFLWV� DV ZLOO EH DUJXHG LQ 6HFWLRQ ���8QGHU WKHVH FLUFXPVWDQFHV� D GHYDOXDWLRQ PD\ SURYRNH PDVVLYH EDQNUXSWFLHV�JHQHUDWLQJ D ODUJH VRFLDO FRVW� ,QGRQHVLD ���� LV D FDVH LQ SRLQW� 7KH FULVLV ZDVH[DFHUEDWHG E\ GHYDOXDWLRQ EHFDXVH WKH SULYDWH VHFWRU KDG WDNHQ VKRUW�WHUP ORDQVWR ILQDQFH QRQ�WUDGDEOH VHFWRU SURMHFWV��

)LQDOO\� LW VKRXOG EH QRWHG WKDW UHDO H[FKDQJH UDWH PLVDOLJQPHQWV FDQ EH IL[HGE\ FRPPHUFLDO SROLF\� $ XQLIRUP LPSRUW�WDULII�FXP�H[SRUW�VXEVLG\ SROLF\ PLJKWGR WKH WULFN� 7R UHSOLFDWH WKH HIIHFW RI QRPLQDO GHYDOXDWLRQ� WKH XQLIRUPWDULII�VXEVLG\ SROLF\ VKRXOG EH WHPSRUDU\� DQG SKDVHG RXW LQ WKH FRXUVH RI D IHZTXDUWHUV��� 7KLV SROLF\ KDV VHYHUDO DGYDQWDJHV RYHU QRPLQDO GHYDOXDWLRQ� ��� LW KDVQDWXUDO XSSHU ERXQGV LPSRVHG E\ FRPSOLDQFH LQFHQWLYHV �H�J�� EH\RQG D FHUWDLQUDWH� IXUWKHU WDULII KLNHV ZRXOG EH HYDGHG WKURXJK VPXJJOLQJ� IRU H[DPSOH�� DQG��� LW GRHV QRW DIIHFW WKH UHDO �LQWHUQDWLRQDO� YDOXH RI DVVHWV DQG OLDELOLWLHV� LPSO\LQJWKDW GHEW�UHODWHG EDQNUXSWFLHV LQ WKH QRQ�WUDGDEOH VHFWRU GLVFXVVHG DERYH ZRXOGEH OHVV SUHYDOHQW �DOWKRXJK VWLOO EDQNUXSWFLHV PD\ DULVH LI QRQ�WUDGDEOHV DUHSURGXFHG E\ PHDQV RI WUDGDEOH JRRGV�� 0RUHRYHU� WKH XQLIRUP WDULII�VXEVLG\

� ,Q &DOYR �����E�� , FDOO WKLV SKHQRPHQRQ ¶VXGGHQ VWRS· DQG DQDO\VH LWV LPSOLFDWLRQV�� 7KH NH\ TXHVWLRQ� ZK\ ZRXOG ILUP DQG JRYHUQPHQW ERUURZLQJ EH GHQRPLQDWHG LQ IRUHLJQ H[FKDQJH HYHQXQGHU IOH[LEOH H[FKDQJH UDWHV� ZLOO EH GLVFXVVHG LQ 6HFWLRQ ���� 7KHUH ZLOO FHUWDLQO\ EH FUHGLELOLW\ SUREOHPV ZLWK WKLV NLQG RI SROLF\� EXW QRW QHFHVVDULO\ PRUH VHULRXV WKDQLQ WKH FDVH LQ ZKLFK UHDO H[FKDQJH UDWH PLVDOLJQPHQW LV UHVROYHG YLD QRPLQDO GHYDOXDWLRQV�

ON DOLLARIZATION ���

SROLF\ LQFUHDVHV ILVFDO VXUSOXV LI WKH FRXQWU\ UXQV D WUDGH GHILFLW�

3.2 Lender of Last Resort, LOLR 7KHUH DUH FLUFXPVWDQFHV LQ ZKLFK EDQNV FDQ EH VXEMHFW WR HVVHQWLDOO\ VHOI�IXOILOOLQJUXQV �VHH 'LDPRQG DQG '\EYLJ� ������ %DQN UXQV� LQ WXUQ� PD\ KDYH GHOHWHULRXVHIIHFW RQ RXWSXW DQG HPSOR\PHQW� +HQFH� D /2/5 FRXOG HQKDQFH ZHOIDUH E\VWRSSLQJ EDQN UXQV E\ WKH WLPHO\ SURYLVLRQ RI H[WUD FUHGLW �VHH )LVFKHU ������ IRU DUHFHQW VXUYH\ RI WKH OLWHUDWXUH ZLWK VSHFLDO UHIHUHQFH WR LQWHUQDWLRQDOFRQVLGHUDWLRQV�� &ULWLFV RI GROODUL]DWLRQ FODLP WKDW WKLV IXQFWLRQ FRXOG EH VHULRXVO\LPSDLUHG E\ GROODUL]DWLRQ� XQOHVV WKH FRXQWU\ KDV DFFHVV WR WKH )HG·V GLVFRXQWZLQGRZ� $ FRPPRQ HUURU� KRZHYHU� LV WR WKLQN WKDW WKH /2/5 UROH LV LQH[WULFDEO\OLQNHG WR WKH DELOLW\ WR SULQW EDVH PRQH\� $FWXDOO\� WKHUH DUH DOWHUQDWLYH ZD\V RISURYLGLQJ EDQN OLTXLGLW\� )RU H[DPSOH� WKH 7UHDVXU\ DQG WKH FHQWUDO EDQN FRXOG��� FUHDWH D VWDELOL]DWLRQ IXQG RU ��� VHW XS FRQWLQJHQW FUHGLW OLQHV ZLWK SULYDWHEDQNV� ZKHUH LQ ERWK LQVWDQFHV WKH IXQGV ZRXOG EH HDUPDUNHG IRU EDQN UXQV���

&UHGLW OLQHV DUH OLNHO\ WR EH FKHDSHU XQGHU GROODUL]DWLRQ EHFDXVH WKHUH H[LVWV QRULVN RI GHYDOXDWLRQ�UHODWHG EDQNUXSWFLHV� )LQDOO\� ��� WKH FRXQWU\ FRXOG VLJQ D7UHDW\ ZLWK WKH 86 IRU VHLJQLRUDJH VKDULQJ� 6FKHPDWLFDOO\� LI LQWHUQDWLRQDO UHVHUYHVKHOG E\ WKH FRXQWU\ DUH GHQRWHG E\ 5� DQG WKH 86 7UHDVXU\ %LOO UDWHV E\ U�DVVXPHG FRQVWDQW IRU WKH VDNH RI VLPSOLFLW\�� WKHQ WKH FRXQWU\ LQ TXHVWLRQ ZRXOGEH UHFHLYLQJ VHLJQLRUDJH HTXLYDOHQW WR U5� ,I� VD\� WKH HQWLUH 5 LV XWLOL]HG WR UHWLUHGRPHVWLF EDVH PRQH\� WKHQ� ZLWKRXW D 7UHDW\� WKH FRXQWU\ ZRXOG UHOLQTXLVK DOOVHLJQLRUDJH� +RZHYHU� WKH FRXQWU\ FRXOG RIIHU WKH IROORZLQJ GHDO WR WKH 86� ZHZLOO VZDS RXU UHVHUYHV IRU GROODU ELOOV DQG D 86�JRYHUQPHQW FRQVRO \LHOGLQJ �U5SHU XQLW RI WLPH� ZKHUH � � � � �� 7KLV VKRXOG EH DWWUDFWLYH WR WKH 86 EHFDXVH LWORZHUV LWV GHEW EXUGHQ� 0RUHRYHU� WKH FRXQWU\ LQ TXHVWLRQ FRXOG GLVFRXQW WKHFRQVRO LQ WKH FDSLWDO PDUNHW DQG FUHDWH D VWDELOL]DWLRQ IXQG� &OHDUO\� LI WKH PDUNHWLQWHUHVW UDWH ZHUH DOVR HTXDO WR U� WKHQ WKH VL]H RI WKH VWDELOL]DWLRQ IXQG DW WKH VWDUWZRXOG EH �5� ,Q WKH FDVH RI $UJHQWLQD� IRU H[DPSOH� WKLV W\SH RI DUUDQJHPHQWZRXOG TXLWH HDVLO\ JHQHUDWH XSZDUGV RI 86��� ELOOLRQ �VHH &DOYR� ����E��

3.3 Debt deflation 7KLV SUREOHP ZDV KLJKOLJKWHG LQ .H\QHV ������ DQG )LVKHU ������ LQ FRQQHFWLRQZLWK SULFH GHIODWLRQ LQ WKH WKLUWLHV� 7KH FHQWUDO DVVXPSWLRQ LV WKDW LQWHUHVW UDWHV RQORDQV DUH QRW VWDWH FRQWLQJHQW �DV ZDV ODUJHO\ WKH FDVH WKHQ� DQG LV VWLOO QRZ�HVSHFLDOO\ LQ (0V�� 7KHUHIRUH� DQ XQDQWLFLSDWHG FROODSVH LQ SULFHV PD\ OHDG WREDQNUXSWFLHV� HYHQ WKRXJK WKH ERUURZLQJ ILUPV DUH HIILFLHQW� 7KXV� LI EDQNUXSWF\

�� $OWHUQDWLYH ��� KDV EHHQ LPSOHPHQWHG LQ $UJHQWLQD WKURXJK SXW RSWLRQV ZLWK LQWHUQDWLRQDO EDQNV� ,WVKRXOG EH SRLQWHG RXW� KRZHYHU� WKDW VWDELOL]DWLRQ IXQGV VKRXOG EH VDIHO\ NHSW DVLGH IRU XVH GXULQJ FULVHV�2WKHUZLVH WKH\ PD\ EH GLYHUWHG WR RWKHU SXUSRVHV� DV KDSSHQHG UHFHQWO\ LQ 0H[LFR DQG 7KDLODQG ZLWKLQWHUQDWLRQDO UHVHUYHV WKDW KDG EHHQ DFTXLUHG WKURXJK VWHULOL]DWLRQ RSHUDWLRQV� )RU WKH FDVH RI 0H[LFR� VHH&DOYR DQG 0HQGR]D �������

CALVO ���

LV VRFLDOO\ FRVWO\� GHEW GHIODWLRQ FDUULHV D GHDGZHLJKW ORVV� )LVKHU ������ DUJXHVWKDW WKLV SKHQRPHQRQ �ODEHOHG GHEW GHIODWLRQ�� LV D PDMRU IDFWRU EHKLQG *UHDW'HSUHVVLRQV� $OWKRXJK GROODUL]DWLRQ FULWLFV KDYH QRW UDLVHG WKH GHEW GHIODWLRQVSHFWUH� , EHOLHYH LW LV SHUKDSV WKH PRVW VHULRXV WKUHDW WR D GROODUL]HG HFRQRP\�7KLV LV HVSHFLDOO\ UHOHYDQW IRU (0V WKDW DUH RSHQ WR LQWHUQDWLRQDO WUDGH DQG ZKRVHWHUPV RI WUDGH YDU\ ZLGHO\ �H�J�� &KLOH� 9HQH]XHOD�� DQG LQGHSHQGHQWO\ RI WKH 86SULFH OHYHO� 7KLV LV VR EHFDXVH D SULFH FROODSVH LQ WKH FRXQWU\ LQ TXHVWLRQ LVXQOLNHO\ WR WULJJHU DQ RIIVHWWLQJ UHVSRQVH E\ 86 PRQHWDU\ SROLF\�

+RZHYHU� GHEW GHIODWLRQ ZLOO QRW EH UHPHGLHG E\ GHYDOXDWLRQ LI ILUPV DUHOLDELOLW\ GROODUL]HG� ,I JRRGV DUH IXOO\ WUDGDEOH� WKH GHEW GHIODWLRQ SUREOHP UHPDLQVLQWDFW� 2Q WKH RWKHU KDQG� LI JRRGV DUH QRQ�WUDGDEOH �H�J�� UHDO HVWDWH�� GHYDOXDWLRQLV OLNHO\ WR ORZHU WKHLU UHODWLYH SULFHV ZLWK UHVSHFW WR WUDGDEOHV� ZRUVHQLQJ WKHGHEW�GHIODWLRQ SUREOHP�

7R OHVVHQ WKH SUREDELOLW\ DQG GHOHWHULRXV HIIHFWV RI GHEW GHIODWLRQ� WKHJRYHUQPHQW FRXOG WDNH WKH IROORZLQJ VWHSV� )LUVW� PDNH ORDQ�ORVV SURYLVLRQV DQLQFUHDVLQJ IXQFWLRQ RI WKH ERUURZHU·V RXWSXW SULFH �UHODWLYH WR VRPH ¶QRUPDO·VWDQGDUG WKDW FRXOG LWVHOI YDU\ RYHU WLPH�� 6HFRQG� KHOS WR GHYHORS IXWXUH PDUNHWVIRU &3,� 5HDO (VWDWH DQG RWKHU UHOHYDQW SULFHV� WR EH XVHG E\ GRPHVWLF ERUURZHUVDV KHGJLQJ LQVWUXPHQWV� 7R SURYLGH IXUWKHU LQFHQWLYHV� ORDQ�ORVV SURYLVLRQV FRXOGEH PDGH D QHJDWLYH IXQFWLRQ RI WKH XVH RI WKRVH LQVWUXPHQWV E\ ERUURZHUV�

,Q VXPPDU\� H[FKDQJH UDWH IOH[LELOLW\ LV QHLWKHU WKH RQO\� QRU WKH EHVW� ZD\ WRUHVSRQG WR WKH SUREOHPV WKDW DUH DVVRFLDWHG ZLWK GROODUL]DWLRQ�

���/LDELOLW\�GROODUL]DWLRQ�

/LDELOLW\ GROODUL]DWLRQ LV DQ LVVXH WKDW KDV UHFXUUHG VHYHUDO WLPHV LQ RXUGLVFXVVLRQ��� +HUH , ZLOO SUHVHQW D UDWLRQDOH IRU LWV H[LVWHQFH� 7R VWDUW RII� FRQVLGHUD VPDOO FRXQWU\ LQ ZKLFK ZDJHV DQG WKH SULFHV RI DOO GRPHVWLFDOO\ WUDGHG JRRGVDUH GHQRPLQDWHG LQ ORFDO FXUUHQF\� ,I WKH HFRQRP\ LV FORVHG WR WKH LQWHUQDWLRQDOFDSLWDO PDUNHW� DQG WKH VKDUH RI LQWHUQDWLRQDO WUDGH LV VPDOO� WKHQ RQH FDQ FRQFHLYHRI SODXVLEOH FLUFXPVWDQFHV LQ ZKLFK OLDELOLW\ GROODUL]DWLRQ LV QHJOLJLEOH� 7KLVVLWXDWLRQ LV PRUH OLNHO\� WKH KLJKHU WKH YRODWLOLW\ RI WKH H[FKDQJH UDWH� HVSHFLDOO\ LIWKH ODWWHU LV XQFRUUHODWHG ZLWK WKH FRXQWU\·V IXQGDPHQWDOV� 7KLV OHDGV WR WKHFRQMHFWXUH WKDW WUXO\ IORDWLQJ H[FKDQJH UDWHV LQ (0V ZRXOG GLVFRXUDJH OLDELOLW\GROODUL]DWLRQ DQG� WKHUHIRUH� WKDW RQH VKRXOG QRW WDNH OLDELOLW\ GROODUL]DWLRQ DVLPPXWDEOH DQG XQUHODWHG WR WKH H[FKDQJH UDWH UHJLPH� , ZLOO QRZ DUJXH WKDW WKLV

�� ,QWHUHVWLQJO\� OLDELOLW\ GROODUL]DWLRQ� DV RSSRVHG WR DVVHW GROODUL]DWLRQ �H�J�� GROODU GHSRVLWV LQ ORFDO EDQNV� KDVUHFHLYHG QR DWWHQWLRQ LQ VWDQGDUG FXUUHQF\�VXEVWLWXWLRQ OLWHUDWXUH� 6HH &DOYR ������ &KDSWHU ��� DQG ,0)������� 5HFHQW OLWHUDWXUH� KRZHYHU� KDV EHHQ JLYLQJ JURZLQJ DWWHQWLRQ WR WKLV SKHQRPHQRQ� VHH IRU LQVWDQFH-HDQQH �����DE� ����� RQ WKH VLJQDOLQJ UROH RI IRUHLJQ FXUUHQF\ GHEW� DQG +DXVPDQ ������� $JKLRQ HW DO������� DQG &KDPRQ �������

ON DOLLARIZATION ���

UHDVRQLQJ LV LQFRPSOHWH EHFDXVH LW OHDYHV RXW FUXFLDO (0 FKDUDFWHULVWLFV� :KHQWKRVH DUH EURXJKW WR EHDU RQ WKH GLVFXVVLRQ� FRQFOXVLRQV FRXOG EH UDGLFDOO\GLIIHUHQW�

7KH ILUVW NH\ REVHUYDWLRQ LV WKDW (0V KDYH GHSHQGHG DQG ZLOO SUREDEO\GHSHQG RQ IRUHLJQ VDYLQJV �L�H�� FXUUHQW DFFRXQW GHILFLWV�� HVSHFLDOO\ IRUHLJQ ORDQV�IRU JURZWK� )RUHLJQ ORDQV DUH QRUPDOO\ GHQRPLQDWHG LQ IRUHLJQ H[FKDQJH� 2QHUHDVRQ IRU WKLV LV LQVWLWXWLRQDO� 5HJXODWLRQ W\SLFDOO\ SUHYHQWV EDQNV IURPH[KLELWLQJ D ODUJH PLVPDWFK EHWZHHQ WKH FXUUHQF\ GHQRPLQDWLRQ RI WKHLU DVVHWVDQG OLDELOLWLHV� )RUHLJQ EDQNV ZKLFK DUH IXQGHG DEURDG� DQG WKXV LQ IRUHLJQH[FKDQJH� KDYH D SUHIHUHQFH IRU GROODU OHQGLQJ� 7KHUHIRUH� EDQN SHVR ORDQVLQWHUHVW UDWHV ZLOO H[KLELW D SUHPLXP KLJKHU WKDQ FRXOG EH DFFRXQWHG IRU E\H[FKDQJH�UDWH ULVN� WKXV FUHDWLQJ LQFHQWLYHV IRU GROODU ERUURZLQJ�

$QRWKHU UHDVRQ LV LQIRUPDWLRQDO� ([FKDQJH UDWHV DUH GLIILFXOW WR SUHGLFW� ERWKIRU VWUXFWXUDO DQG SROLF\�LQFHQWLYH FRQVLGHUDWLRQV� )RU LQVWDQFH� ��� PRQHWDU\DJJUHJDWHV LQ (0V DUH PRUH YRODWLOH WKDQ LQ DGYDQFHG FRXQWULHV �VHH +DXVPDQQDQG 5RMDV�6XDUH]� ������ SRVVLEO\ UHIOHFWLQJ KLJKHU PRQH\ GHPDQG YRODWLOLW\� DQG��� (0V· JRYHUQPHQWV WHQG WR EH FR�RSWHG E\ WKHLU FRUSRUDWH VHFWRUV �3KHOSV��������� 3RLQW ��� LPSOLHV WKDW (0 JRYHUQPHQWV ZLOO KDYH LQFHQWLYHV WR GHYDOXH� IRUH[DPSOH� LQ RUGHU WR UHOLHYH WKH FRUSRUDWH VHFWRU IURP LWV GHEW REOLJDWLRQV� LI DVL]DEOH VKDUH LV GHQRPLQDWHG LQ GRPHVWLF FXUUHQF\� 7KHVH LQIRUPDWLRQDOGLIILFXOWLHV DUH OLNHO\ WR PDNH WKH FRVWV RI LQIRUPHG SHVR OHQGLQJ YHU\ ODUJH� VLQFHLQIRUPHG LQYHVWRUV ZRXOG KDYH WR KDYH D FOHDU DQG PLQXWH�E\�PLQXWH SLFWXUH RIWKH PDFURHFRQRP\� LQFOXGLQJ SROLWLFDO FRQVLGHUDWLRQV� :KDW DERXW XQLQIRUPHGLQWHUQDWLRQDO OHQGLQJ" ,I LQWHUQDWLRQDO OHQGHUV DQG GRPHVWLF ERUURZHUV VKDUHG WKHVDPH SULRUV DERXW WKH H[FKDQJH UDWH DQG ERWK ZHUH� VD\� ULVN QHXWUDO� WKHQ SHVROHQGLQJ FRXOG VWLOO WDNH SODFH LQ HTXLOLEULXP �JLYHQ WKDW GRPHVWLF ILUPV· UHYHQXHFRQWDLQV� DV D JHQHUDO UXOH� SHVR ULVN�� +RZHYHU� GRPHVWLF ILUPV DUH OLNHO\ WR KDYHEHWWHU LQIRUPDWLRQ WKDQ XQLQIRUPHG LQWHUQDWLRQDO OHQGHUV �8,/V�� VLPSO\ EHFDXVHWKH IRUPHU RSHUDWH LQ WKH (0� UHDG LWV QHZVSDSHUV� OLVWHQ WR LWV UDGLRV� HWF� 7KXV� LIWKH 8,/V DUH DZDUH RI WKLV LQIRUPDWLRQDO DV\PPHWU\� WKH\ ZRXOG KDYH UHDVRQ WREH ZDU\ ZKHQ GRPHVWLF ILUPV LQFUHDVH WKHLU VXSSO\ RI SHVR�GHQRPLQDWHG ERQGV�$ /HPRQ·V 3UREOHP DULVHV WKDW LV DNLQ WR WKH VLWXDWLRQ KLJKOLJKWHG LQ &DOYR ����� D��3HVR ERUURZLQJ VHQGV D PL[HG VLJQDO WR WKH 8,/V� RQ WKH RQH KDQG� ILUPV PD\JHQXLQHO\ QHHG PRUH ILQDQFLQJ EXW� RQ WKH RWKHU KDQG� SHVR ERUURZLQJ PD\ EHWKH UHVXOW RI ILUPV NQRZLQJ WKDW WKH FXUUHQF\ ZLOO EH GHYDOXHG� 7KXV� ILUPV WKDWLQWHQG WR ERUURZ IRU JHQXLQH UHDVRQV ZLOO ILQG SHVR UDWHV �DGMXVWHG IRUGHYDOXDWLRQ H[SHFWDWLRQV� PXFK KLJKHU WKDQ GROODU UDWHV� &RQVHTXHQWO\� WKH DERYHGLVFXVVLRQ VKRZV WKDW LQWHUQDWLRQDO SHVR OHQGLQJ PD\ EH OLPLWHG ZKHQ LQIRUPHGLQYHVWRUV DUH LQYROYHG ² EHFDXVH LQIRUPDWLRQ LV YHU\ FRVWO\²DQG� DOVR� ZKHQ 8,/VDUH LQYROYHG ² EHFDXVH WKHUH PD\ EH D /HPRQ·V 3UREOHP�

�� 7KLV FRXOG EH SDUWO\ H[SODLQHG DV D UHPQDQW RI WKHLU SURWHFWLRQLVW KLVWRU\� DQG WKH ODFN RI D VROLGFDSLWDOLVW WUDGLWLRQ�

CALVO ���

7KH GLVFXVVLRQ VR IDU KDV IRFXVHG RQ WKH SULYDWH VHFWRU� DOWKRXJK WKH VDPHFRQVLGHUDWLRQV DSSO\ WR JRYHUQPHQW� ,Q DGGLWLRQ� JRYHUQPHQW� LQ FRQWUDVW ZLWK WKHSULYDWH VHFWRU� FDQ GHYDOXH DQG� WKHUHIRUH� WKHUH LV DQ H[WUD UHDVRQ IRU IRUHLJQLQYHVWRUV WR EH ZDU\ DERXW SHVR�GHQRPLQDWHG JRYHUQPHQW GHEW� %\ FKDQJLQJGHQRPLQDWLRQ FRPSRVLWLRQ LQ IDYRXU RI GROODU OLDELOLWLHV� WKH JRYHUQPHQW FRXOGORZHU WKH SHVR SUHPLXP� EHQHILWLQJ ERWK WKH JRYHUQPHQW DQG WKH SULYDWH VHFWRU���

���)LQDO�ZRUGV�

'ROODUL]DWLRQ LV� ZLWKRXW DQ\ GRXEW� D PRPHQWRXV SROLF\ GHFLVLRQ DQG QRW DOO (0VFRXOG EH VXLWHG IRU WKH PRYH� +RZHYHU� WKLV SDSHU KDV DUJXHG WKDW LWV SODXVLELOLW\LV JUHDWO\ HQKDQFHG LI RQH WDNHV LQWR FRQVLGHUDWLRQ (0V· LQLWLDO FRQGLWLRQV� $ NH\RQH LV OLDELOLW\ GROODUL]DWLRQ ZKLFK OLPLWV WKH GHVLUDELOLW\ RI H[FKDQJH UDWH IOH[LELOLW\�,Q WKH DEVHQFH RI GROODUL]DWLRQ� FRXQWULHV PD\ FRQYHUJH WR D V\VWHP LQ ZKLFKH[FKDQJH UDWHV DUH UHODWLYHO\ IL[HG EXW� JLYHQ WKDW GHYDOXDWLRQ LV DOZD\V DSRVVLELOLW\� SHVR LQWHUHVW UDWHV UHPDLQ KLJK �SHVR SUREOHP�� 7KH ODWWHU� LQ WXUQ�PLOLWDWH DJDLQVW ERUURZHUV WKDW DUH VHJPHQWHG IURP WKH LQWHUQDWLRQDO FDSLWDOPDUNHW �H�J�� VPDOO� DQG PHGLXP�VL]HG ILUPV SURGXFLQJ QRQ�WUDGDEOH JRRGV� DQG�WKXV� LQWHUIHUHV ZLWK GHPRFUDWLF JURZWK� DQG WKH GHYHORSPHQW RI D WUXO\FRPSHWLWLYH KRPH�JRRGV PDUNHW�

5HIHUHQFHV�

$JKLRQ� 3�� %DFFKHWWD� 3� DQG %DQHUMHH� $� ������� ¶$ FRUSRUDWH EDODQFH�VKHHW DSSURDFK WRFXUUHQF\ FULVHV·� &(35 'LVFXVVLRQ 3DSHU ����� /RQGRQ� &(35�

&DOYR� *�$� �������0RQH\� ([FKDQJH 5DWHV� DQG 2XWSXW� &DPEULGJH� 0$� 7KH 0,7 3UHVV�&DOYR� *�$� �����D�� ¶8QGHUVWDQGLQJ WKH 5XVVLDQ YLUXV� ZLWK VSHFLDO UHIHUHQFH WR /DWLQ

$PHULFD·� PDQXVFULSW� 2FWREHU� 6HH� ZZZ�EVRV�XPG�HGX�HFRQ�FLHFDOYR�KWP�&DOYR� *�$� �����E�� ¶&DSLWDO IORZV DQG FDSLWDO�PDUNHW FULVHV� WKH VLPSOH HFRQRPLFV RI

VXGGHQ VWRSV·� -RXUQDO RI $SSOLHG (FRQRPLFV �&(0$�� ����� SS� ��²���&DOYR� *�$� �����D�� ¶&RQWDJLRQ LQ HPHUJLQJ PDUNHWV� ZKHQ :DOO 6WUHHW LV WKH FDUULHU·�

PDQXVFULSW� )HEUXDU\� 6HH ZZZ�EVRV�XPG�HGX�HFRQ�FLHFDOYR�KWP�&DOYR� *�$� �����E�� ¶$UJHQWLQD·V GROODUL]DWLRQ SURMHFW� D SULPHU·� PDQXVFULSW� )HEUXDU\�

6HH ZZZ�EVRV�XPG�HGX�HFRQ�FLHFDOYR�KWP�&DOYR� *�$�� /HLGHUPDQ� /� DQG 5HLQKDUW� &� 0� ������� ¶&DSLWDO LQIORZV DQG UHDO H[FKDQJH

DSSUHFLDWLRQ LQ /DWLQ $PHULFD� WKH UROH RI H[WHUQDO IDFWRUV�· ,0) 6WDII 3DSHUV� ������SS� ���²���

&DOYR� *�$� DQG 0HQGR]D� (� *� ������� ¶0H[LFR·V EDODQFH�RI�SD\PHQWV FULVLV� D FKURQLFOHRI GHDWK IRUHWROG·� -RXUQDO RI ,QWHUQDWLRQDO (FRQRPLFV� ��� SS� ���²���

�� )RU IXUWKHU GLVFXVVLRQ� VHH &DOYR ������ &KDSWHU ����

ON DOLLARIZATION ���

&DOYR� 6� DQG 5HLQKDUW� &� 0� ������� ¶&DSLWDO IORZV WR /DWLQ $PHULFD� LV WKHUH HYLGHQFH RIFRQWDJLRQ HIIHFWV"· LQ *� &DOYR� 0� *ROGVWHLQ DQG (� +RFKUHLWHU �HGV��� 3ULYDWH &DSLWDO)ORZV WR (PHUJLQJ 0DUNHWV $IWHU WKH 0H[LFDQ &ULVLV� :DVKLQJWRQ� ,QVWLWXWH IRU,QWHUQDWLRQDO (FRQRPLFV�

&DOYR� *�$� DQG 5HLQKDUW� &� 0� ������� ¶)HDU RI IORDWLQJ·� 4XDUWHUO\ -RXUQDO RI (FRQRPLFV�������� SS� ��������

&KDPRQ� 0� ������� ¶)RUHLJQ FXUUHQF\ GHQRPLQDWLRQ RI IRUHLJQ FXUUHQF\ GHEW� KDV WKH¶RULJLQDO VLQ· EHHQ IRUJLYHQ EXW QRW IRUJRWWHQ"· PLPHR� +DUYDUG 8QLYHUVLW\�

&KXKDQ� 3�� &ODHVVHQV� 6� DQG 0DPLQJL� 1� ������� ¶(TXLW\ DQG ERQG IORZV WR /DWLQ$PHULFD DQG $VLD� WKH UROH RI JOREDO DQG FRXQWU\ IDFWRUV·� :RUOG %DQN� ,(&,) 3ROLF\5HVHDUFK :RUNLQJ 3DSHU 1R� ����� :DVKLQJWRQ� '&� 7KH :RUOG %DQN�

'H *UDXZH� 3� ������� 7KH (FRQRPLFV RI 0RQHWDU\ ,QWHJUDWLRQ� VHFRQG UHYLVHG HGLWLRQ� 1HZ<RUN� 2[IRUG 8QLYHUVLW\ 3UHVV� ,QF�

'LDPRQG� '� :� DQG '\EYLJ� 3� +� ������� ¶%DQN UXQV� GHSRVLW LQVXUDQFH� DQG OLTXLGLW\·�-RXUQDO RI 3ROLWLFDO (FRQRP\� ������ -XQH� SS� ���²���

'RROH\� 0�� )HUQDQGH]�$ULDV� (� DQG .OHW]HU� .� ������� ¶,V WKH GHEW FULVLV KLVWRU\"· :RUOG%DQN (FRQRPLF 5HYLHZ� ������ SS� ��²���

(GZDUGV� 6� ������� 5HDO ([FKDQJH 5DWHV� 'HYDOXDWLRQ� DQG $GMXVWPHQW� &DPEULGJH� 0$� 7KH0,7 3UHVV�

(LFKHQJUHHQ� %� DQG 0RG\� $� ������� ¶,QWHUHVW UDWHV LQ WKH 1RUWK DQG FDSLWDO IORZV WR WKH6RXWK� LV WKHUH D PLVVLQJ OLQN"· ,QWHUQDWLRQDO )LQDQFH� ����� 2FWREHU� SS� ��²���

)HUQDQGH]�$ULDV� (� ������� ¶7KH QHZ ZDYH RI SULYDWH FDSLWDO LQIORZV� SXVK RU SXOO"· -RXUQDORI 'HYHORSPHQW (FRQRPLFV� ������ SS� ���²����

)LVFKHU� 6� ������� ¶2Q WKH QHHG IRU DQ LQWHUQDWLRQDO OHQGHU RI ODVW UHVRUW·� 3ULQFHWRQ (VVD\V LQ,QWHUQDWLRQDO (FRQRPLFV� ����

)LVKHU� ,� ������� ¶7KH GHEW�GHIODWLRQ WKHRU\ RI JUHDW GHSUHVVLRQV·� (FRQRPHWULFD� �����SS� ���²���

+DXVPDQQ� 5�� 6WHLQ� +� DQG 3DQL]]D� 8� ������� ¶:K\ GR FRXQWULHV IORDW WKH ZD\ WKH\IORDW"· -RXUQDO RI 'HYHORSPHQW (FRQRPLFV� ������ SS� ���²����

+DXVPDQQ� 5� DQG 5RMDV�6XDUH]� /� ������� �HGV�� 9RODWLOH &DSLWDO )ORZV� ,QWHU�$PHULFDQ'HYHORSPHQW %DQN� GLVWULEXWHG E\ -RKQV +RSNLQV 8QLYHUVLW\ 3UHVV�

,0) ������� ¶0RQHWDU\ SROLF\ LQ GROODUL]HG HFRQRPLHV·� 2FFDVLRQDO 3DSHU 1R� ����:DVKLQJWRQ� '&� ,0)�

-HDQQH� 2� �����D�� ¶)RUHLJQ FXUUHQF\ GHEW DQG VLJQDOLQJ·� PLPHR� 6HSWHPEHU� ,0)�-HDQQH� 2� �����E�� ¶)RUHLJQ FXUUHQF\ GHEW� PRUDO KD]DUG DQG WKH JOREDO ILQDQFLDO

DUFKLWHFWXUH·� PLPHR� 6HSWHPEHU� ,0)�-HDQQH� 2� ������� ¶)RUHLJQ FXUUHQF\ GHEW DQG WKH JOREDO ILQDQFLDO DUFKLWHFWXUH·� (XURSHDQ

(FRQRPLF 5HYLHZ� ��� SS� ���²���.DPLQVN\� *� /� DQG 5HLQKDUW� &� 0� ������� ¶2Q FULVHV� FRQWDJLRQ DQG FRQIXVLRQ·� -RXUQDO RI

,QWHUQDWLRQDO (FRQRPLFV� ������ SS� ���²���.H\QHV� -� 0� ������� ¶7KH FRQVHTXHQFHV WR WKH EDQNV RI WKH FROODSVH RI PRQH\ YDOXHV·�

UHSULQWHG LQ KLV (VVD\V LQ 3HUVXDVLRQ� :�:�1RUWRQ &RPSDQ\� 1HZ <RUN� �����0XQGHOO� 5� $� ������� ¶$ WKHRU\ RI RSWLPXP FXUUHQF\ DUHDV·� $PHULFDQ (FRQRPLF 5HYLHZ�

������ SS� ���²���3KHOSV� (� 6� ������� ¶7KH JOREDO FULVLV RI FRUSRUDWLVP·�:DOO 6WUHHW -RXUQDO� 0DUFK ���:RUOG %DQN ������� 7KH (DVW $VLDQ 0LUDFOH� SXEOLVKHG IRU WKH :RUOG %DQN E\ 2[IRUG

8QLYHUVLW\ 3UHVV� 1HZ <RUN�