Impact of Remittances on Natural Rate of Dollarization—Trends in Caucasus and Central Asia

Author: Singh Manmohan

Volume/Issue: Volume 2020 Issue 185

Publication date: September 2020

ISBN: 9781513556536

$18.00

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Topics covered in this book

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Exports and Imports , Economics- Macroeconomics , Money and Monetary Policy , Emigration and Immigration , WP , remittance , deposit dollarization , natural rate of dollarization , Russia , COVID , remittances , Central Asia , Caucasus , remittance inflow , dollarization policy , benchmark dollarization , dollarization level , exchange rate depreciation , Dollarization , Exchange rates , Currencies , Income , Global , Central Asia and the Caucasus , loan dollarization rate , Migration

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Summary

This paper discusses migration and remittances trends, and calculates the natural (or benchmark) level of dollarization in Caucasus, Central Asia and others in the region. This natural level of dollarization is conceptually linked to the currency allocation in a portfolio of deposits to maximize welfare, in line with Ize and Levy Yeyati (2003). The fall in remittances due to the economic slowdown since the spread of COVID-19 affects the macroeconomic fundamentals that determine demand for foreign currency deposits. We calculate the natural dollarization level by integrating structural macroeconomic characteristics. We show that despite the reduction in deposit dollarization, there is still a gap with respect to the natural level of dollarization, especially in a scenario of (persistent) lower remittance inflows.