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Endogenous deposit dollarization

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Author/s:
Levy Yeyati, Eduardo
Broda, Cristian
Date:
2003-02
Abstract
This paper explores sources of deposit dollarization unrelated to standard moral hazard arguments. We develop a model in which banks choose the optimal currency composition of their liabilities. We argue that the equal treatment of peso and dollar claims in the event of bank default can induce banks to attract dollar deposits above the socially desirable level. The distortion arises because dollar deposits are the only source of default risk in the model, but dollar depositors share the burden of the default with peso depositors. The incentive to dollarize is reinforced by common banking system safety nets such as deposit and bank insurance. Our findings suggest that regulators in bi-currency economies would potentially benefit by departing from the currency-blind benchmark and di.erentiating among currencies in a way that prevents undesirable currency mismatches.
Para cualquier uso del contenido del presente documento debe ponerse en contacto con el autor.
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https://repositorio.utdt.edu/handle/20.500.13098/10760
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Campus Alcorta
Av. Figueroa Alcorta 7350 (C1428BCW)
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Página de ayuda al investigador
Horarios de atención
Campus Alcorta
Av. Figueroa Alcorta 7350 (C1428BCW)
Sáenz Valiente 1010 (C1428BIJ)
Ciudad de Buenos Aires, Argentina
P: (54 11) 5169 7000