Honohan, Patrick2012-06-062012-06-062007-03https://hdl.handle.net/10986/7252Although the worldwide growth in dollarization of bank deposits has recently slowed, it has already reached very high levels in dozens of countries. Building on earlier findings that allowed the main cross-country variations in the share of dollars to be explained in terms of national policies and institutions, this paper turns to analysis of short-run variations, particularly the response of dollarization to exchange rate changes, which is shown to be too small to warrant "fear of floating" by dollarized economies. But high dollarization is shown to increase the risk of depreciation and even suspension, as indicated by interest rate spreads. While specific policy is needed to deal with the risks associated with dollarization, the underlying causes of unwanted dollarization should also be tackled.CC BY 3.0 IGOBANK DEPOSITSBANK INTEREST RATESBANKING CRISESBANKING SYSTEMBANKING SYSTEMSCDSCENTRAL BANKCENTRAL BANK INDEPENDENCECENTRAL BANKSCOUNTRY VARIATIONCOUNTRY VARIATIONSCREDIT RISKCURRENCY BOARDCURRENCY CRISISCURRENCY DEPRECIATIONCURRENCY OF DENOMINATIONCURRENCY RISKCURRENCY UNITSDEPOSIT DOLLARIZATIONDEPOSIT INTERESTDEPOSIT INTEREST RATESDEPOSIT MONEYDEPOSIT MONEY BANKSDEPOSIT RATESDEPRECIATION DOESDISINFLATIONDOLLAR DEPOSITSDOLLARIZATION RATIOSDOMESTIC CURRENCYEAST EUROPEANELASTICITYEUROEXCHANGE ARRANGEMENTSEXCHANGE CONTROLSEXCHANGE RATEEXCHANGE RATE CHANGESEXCHANGE RATE CRISESEXCHANGE RATE DEPRECIATIONEXCHANGE RATE PEGEXCHANGE RATE POLICYEXCHANGE RATE REGIMEEXCHANGE RATESEXCHANGE RESTRICTIONSFINANCIAL STABILITYFINANCIAL SYSTEMSFOREIGN CURRENCYFOREIGN CURRENCY DEPOSITSFOREIGN CURRENCY HOLDINGSFOREIGN CURRENCY LIABILITIESFOREIGN EXCHANGEFOREIGN EXCHANGE RISKFOREIGN INVESTMENTSGDPHIGH INFLATIONHIGH RATESINDIRECT EFFECTSINFLATIONINFLATION RATEINFLATION RATESINHERITANCEINSTITUTIONAL DEVELOPMENTINTEREST RATEINTEREST RATESINTERNATIONAL TRADELEBANESE POUNDLEGAL SYSTEMLENDER OF LAST RESORTLIQUID ASSETSLIQUIDITYLIQUIDITY CRISESLOCAL BANKING SYSTEMLOCAL BORROWERSLOCAL CURRENCYM2MACROECONOMIC ENVIRONMENTMARKET RISKMONETARY AUTHORITIESMONETARY EXPANSIONMONETARY POLICYMONETARY SHOCKSMONEY BASENATIONAL AUTHORITIESNOMINAL EXCHANGE RATESNOMINAL RATESNORMAL VOLATILITYOFFSHORE BANKINGOPTIMIZATIONPEGSPOLICY CREDIBILITYPOLICY OPTIONSPOLICY RESEARCHPORTFOLIORISK PREMIUMSEIGNIORAGESOLVENCYSTABILIZATIONSTANDARD DEVIATIONSYSTEMIC RISKTRANSITION ECONOMIESVALUATIONYEMENWorld Bank10.1596/1813-9450-4172