Jump to ContentJump to Main Navigation
Playing Monopoly with the DevilDollarization and Domestic Currencies in Developing Countries$

Manuel Hinds

Print publication date: 2006

Print ISBN-13: 9780300113303

Published to Yale Scholarship Online: October 2013

DOI: 10.12987/yale/9780300113303.001.0001

Show Summary Details
Page of

PRINTED FROM YALE SCHOLARSHIP ONLINE (www.yale.universitypressscholarship.com). (c) Copyright Yale University Press, 2022. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in YSO for personal use. Subscriber: null; date: 17 May 2022

(p.249) Index

(p.249) Index

Source:
Playing Monopoly with the Devil
Publisher:
Yale University Press

The letter f or t following a page number refers to a figure or table on that page.

Allende government, 139
Argentina, 47–48, 239–40;
Brazil and, 157;
capital flows, 160–61, 163;
competitiveness, 62, 65;
devaluations, 161–62, 165, 166f;
dollarization and, xxxv;
external debt, 114;
“fear of floating,” 110;
financial crises, 157–65;
income per capita, 158, 159f;
instability, 158–61;
Ireland and, 193;
liquidity trap theory and, 165;
pesification, 129;
real wages and, 80–81;
recession, 157–58;
reversed liquidity trap, 165;
Uruguay and, 130–31
Asian Development Bank, 115
balance of payments: deficits, 22–23;
effects of changes, 23–27
Banco Latino, 146
Bank of Mexico, 74, 147
bank runs, 124, 136–37, 188, 189;
Chile, 143;
Dominican Republic, 149;
Mexico, 148;
Venezuela, 146. See also crises, currency; crises, financial
Barriers to Riches (Parente, Prescott), 55–56
Belgium, business cycles, 207, 211f
bond financing, 98, 99f, 114, 116, 172, 191. See also tesobonos
Brazil: bonds, 98–99;
business cycles, 212–13;
central bank, 90–91;
currency board, 87–88;
economic stability, 107–8;
El Salvador and, 93–95, 102–3;
exports, 102–3;
fiscal deficits, 96–98, 100;
floating rates theory and, 104;
foreign capital, access to, 98–101;
foreign currency deposits and, 93–96;
government credit expansion, 88–89;
inflation, 91–92;
interest rates, 91–94;
(p.250) liquidity trap theory, 101;
Mexico and, 101;
monetary independence, 89–90;
Moody's Investment Service and, 104–5;
spontaneous dollarization, 93–96;
sterilization, 87–106
Bretton Woods system, 7–9, 10, 113, 177, 231
Bulgaria, 240–41
business cycles, xxxiv, 10–11, 139–41, 144–45, 198t, 202–17;
Belgium, 207, 211f;
Brazil, 212–13;
comparisons, 207–12;
German and French, 205–11;
Greece, 207;
interest rates and, 216;
Netherlands, 213–14
Calvo, Guillermo, 173
capitol loss, growth rate and, 183–85
Central Asia, xxx;
competitiveness, 67–70
Central Bank of Argentina, 164–65
Central Bank of China, 171
Central Bank of Mexico, 74, 147
central banks: globalization and, xxx;
as lenders of last resort, xxvi, 122, 168–71, 172–78;
price instability and, 72–74
Chile, 43–44;
banks, 140, 141–42, 143;
capital flows, 143f;
competitiveness, 65–66;
crisis cycle, 142f;
crisis effects, 143–44;
currency deposits, 31;
devaluation, 141–42;
economic growth, devaluations and, 72t;
“fear of floating,” 111–12;
financial crises, 173, 175f;
inflation, 140–41;
interest rates, 49–51, 142f;
monetary and exchange rate policies, 139–40;
monetary independence and, 49–52
China, 116, 202;
competitiveness, 59–60, 79
Colombia, 45
commodity trade: economic growth and, 79;
prices, 77–78t;
problems, 79
competitiveness, 233–34;
Argentina, 62, 65;
Central Asia, 67–70;
devaluations and, 53–54;
East Asia, 67;
Eastern Europe, 67;
Japan, 56–57;
Latin America, 67, 78t;
Mexico, 59–60;
microeconomic variables and, 55–56;
Middle East, 67–70;
Pacific region, 67;
real wages and, 56–59;
regions and, 67–70;
Singapore, 55;
Sub-Saharan Africa, 67;
Thailand, 61–62, 63–64t
constant dollar prices, 237–38
crises, currency, 121–22, 138–39, 171;
foreign deposits and, 109
crises, financial, 122, 136, 165–66;
Argentina, 157–65;
Asia, 51;
Chile, 139–44, 173, 175f;
dollarized countries and, 139;
Dominican Republic, 148–50, 172–73;
East Asia, 150–51;
Ecuador, 173, 176f, 179–80, 189;
effects, 143–44;
financial depth and, 123;
foreign currency deposits and, 172, 189;
illiquidity and, 136–39;
Indonesia, 138–39, 155–57, 173–74;
Ireland, 192–93;
Korea, 155;
local currencies and, 121, 122–24;
Mexico, 146–48, 173, 175f;
poverty and, 186–87;
risks, 130–35;
Thailand, 151–54, 173–74;
Venezuela, 144–46, 173, 176f
currencies, regional, 147, 229–30
currency: depreciation, xxviii, xxxv;
devaluation, xxxv;
flotation, 8–11, 18, 110;
international, xxxiii;
liquidity, 224;
local, advantages of, xxv–xxvi;
local, standard of value and, xxxiv, 16–20;
price stability, domestic and, 224;
services provided by, xxviii–xxix;
sovereignty and, 227–28;
as standard of value, xxix, 16;
trade openness and, 224–25. See also specific currencies
currency crises. See crises, currency
currency leakage, 30, 84, 169, 170t
currency regimes: choosing, xxxv-xxxvii, 217–19, 220;
managing, xxxv
currency runs, 124;
Argentina, 162–63;
Chile, 143;
East Asia, 150–51;
Korea, 155, 156f;
(p.251) Thailand, 151, 153;
Venezuela, 145–46
currency unions, 223, 225, 230
demand, domestic, 171–72
deposits, interest rates and, 30t, 40–42
depth, financial. See financial depth
derivatives, 109, 115, 147, 221
devaluation: Argentina, 161–62, 165, 166f;
competitiveness and, 53–54;
currency runs and, 121–22;
economic recovery and, 122;
equilibrium interest rates and, 21–22, 32–37;
external debt: GDP ratio, 182–83;
external shocks and, 214–16;
financial costs and, 38–46;
foreign currency deposits and, 33–36;
growth and, 53–54;
inflation rates and, 11, 17, 18, 23–27;
investment and, 72–73;
longterm growth and, 214;
manufacturing industries and, 181–82;
maturity and currency mismatches and, 124;
negative effects, 180–81;
prices and, 71–72;
real versus nominal, 18–19;
redistribution of wealth and, 185–87;
Thailand, 183–85;
trade distribution and, 216–17
developed countries, xxviii;
devaluations and inflation in, 23–27
developing countries: bond financing, 116;
currency management, xxxii–xxxiii;
devaluations and inflation in, 23–27;
disintermediation and, 115;
dollar-denominated deposits in, xxx;
monetary behavior in, xxviii—xxix;
monetary globalization and, 108–17;
multilateral lenders and, 115;
optimal currency theory and, 217–19
disintermediation, 44;
developing countries and, 115
diversification, 203;
economic growth and, 75–79
Dollar, David, 181–82
dollar, U.S., 15, 16–17;
depreciation of, 21–22;
foreign need for, 168;
reversed liquidity trap and, 168
dollar-denominated debt, xxii, 91
dollar-denominated deposits, xxx, 34–35, 149
dollarization, xxxiv, 226–29;
nonresident depositors and, 130–31;
opposition to, 228–29
pesification and, 128–30;
price volatility and, 215–16
spontaneous (see spontaneous dollarization);
U.S. deficits and, 230–31
domestic demand, management of, 87–106
Dominican Republic, 31, 172, 173f, 238–41;
banks, 149;
dollar deposits and devaluations, 35;
financial crises, 148–50
East Asia: business cycles, 207;
competitiveness, 67;
currency runs, 150–51;
employment, 186;
financial crises, 150–51;
financial depth, 28–31. See also specific countries
Eastern Europe, xxx;
competitiveness, 67
Economic Consequences of Mr. Churchill, The (Keynes), 7
economic growth. See growth, economic
Economist, The, 80–81
economy size, 202–3
Ecuador, 239–40;
devaluation, 180–81;
dollarization effects, 179–80;
financial crises, 173, 176f, 179–80, 189
El Salvador: Brazil and, 93–95;
deposits, foreign and local, 94–99;
dollarization and, xxxv–xxxvi, 83;
external shocks and, 215–16;
growth, 91;
Panama and, 215–16;
performance, 102–3;
seigniorage and, 134
employment, 79–80, 242;
devaluation and, 181;
East Asia, 186–87;
migration and, 204–5. See also unemployment
Eurodollar, 9
(p.252) European Central Bank, 230
exchange rates, 15–18, 182, 203;
Argentina, 158;
China, 207;
fixed, xxxv, 7–10, 140–44, 169;
flexible, external shocks and, 48, 59, 216–17;
impacts, xxvii;
real, 63–64
external debt: GDP ratio, 182–83
external shocks, xxv, xxxviii, 10–11, 198t, 203, 205, 221–22, 225;
Argentina and, 214–16;
Central America, the Caribbean, 215–17;
devaluation and, 214–16;
exchange rate flexibility and, 216;
fiscal policy and, 84;
local currencies and, 205–6;
monetary policy and, 84–85
“fear of floating,” 109–13, 200;
Argentina, 110;
Chile, 111–12;
long-term capital inflows and, 113–14;
Mexico and, 112;
short-term capital inflows and, 111–13
financial crises. See crises, financial
financial depth, 28–31, 123;
East Asia, 28–31;
Latin America, 28–31;
Middle East, 28–31;
Pacific region, 28–31;
South Asia, 28–31
financial markets, international, xxix
fiscal policy: Brazil, 88–89;
crisis management and, 83–85;
demand and, 83–84;
external shocks and, 84;
monetary policies and, 84–85
flotation, currency, 18, 110;
U.S. dollar, 8–11
France, 231;
German business cycles and, 205–11
General Theory of Employment, Interest, and Money (Keynes), 6–7
Germany, French business cycles and, 205–11
Global Development Finance database (World Bank), 108
globalization, xxx, xxxiii, 77, 107–18, 173, 177, 232–33
gold, 8, 201, 231
Greece, 211f
Gresham's law, 201
gross domestic product (GDP), 21, 85–86, 102, 236–37;
M2 and, 123
growth, economic, 91, 214;
commodity trade and, 79;
devaluations and, 53–54;
diversification and, 75–79;
embedded knowledge and, 76–77;
nominal devaluations and, 70–79;
real wages and, 74–76
Hallward-Driemeier, Mary, 181–82
hedging instruments, 117
illiquidity versus insolvency, 113, 136–39
income effect, xxviii
indexation, 43–45
Indonesia, 155–57, 173–74
inflation and devaluation rates, 11
insolvency, 112–13, 136–39, 151
Inter-American Development Bank, 115
interest rates: devaluation and, 20;
economic cycles and, 216;
equilibrium, 21
intermediation: interest rates and, 38–46;
volume of, 27. See also disintermediation
International Monetary Fund (IMF), xxxi, 7, 72–73, 199, 234;
conditionality, 167, 227–28;
crisis management and, 109;
economic policies and, xxxi, 12;
spontaneous dollarization and, 46
investment, devaluation and, 72–73. See also under devaluation
Ireland: Argentina and, 193;
currency, 192–93;
gross fixed investment, 193;
inflation rate, 193;
liquidity trap theory and, 193
Japan, 16–17, 136–37, 202–3, 214, 220–21;
competitiveness, 16–17, 56–59
Jordan, currency deposits, 31
Keynes, John Maynard, 5–7, 8, 11, 171;
The Economic Consequences of Mr. Churchill, 7;
(p.253) General Theory of Employment, Interest, and Money, 6–7;
liquidity trap theory, 7, 11–15, 81, 101, 122, 129, 171;
Treatise on Money, 6–7
General Theory of Employment, Interest, and Money, 6–7;
liquidity trap theory, 7, 11–15, 81, 101, 122, 129, 171;
Treatise on Money, 6–7
knowledge-based products, 56, 76–77, 79, 203, 213. See also diversification
Korea: crises, financial, 155;
employment, 186
labor, xviii–xix, 186–87, 204;
costs, 55–61, 71, 76, 246;
optimal currency theory and, 204–5;
real wages and, 74–76
Latin America, xxx;
competitiveness, 67, 78t;
devaluations and interest rates, 26–27;
financial depth, 28–31. See also specific countries
leakage, currency, 30, 84, 169, 170t
lenders of last resort, central banks as, xxvi, 122
liquidity trap theory, 7, 11–15, 81, 101, 122, 129, 171;
Argentina and, 165;
dollar, U.S. and, 168;
standard of value and, 14
local currencies: fatigue, 35;
interest rates and, 123–24. See also under currency
long-term capital inflows, “fear of floating” and, 113–14. See also capital loss, growth rate and
long-term credit, 45
long-term growth, devaluation and, 214. See also under devaluation
macroeconomic policy, xxxvi
macroeconomics, xvii, 6, 49;
instability, 55, 85, 122, 150, 191–92, 223–24;
models, 218;
U.S., 231
Malaysia, employment, 186
manufacturing industries, devaluation and, 181–82
market size, dollarization and, 232–33
Mexico: banks, 147;
Brazil and, 101;
“fear of floating” and, 112;
financial crises, 173, 175f;
shocks, 147;
tequila crisis, 74, 124, 146–48;
tesobonos, 147–48;
Thailand and, 59–60
Middle East, xxx;
competitiveness, 67–70;
financial depth, 28–31
monetary behavior, developed versus developing countries, xxviii–xxix
monetary creation, international reserves and, 171
monetary globalization, developing countries and, 108–17
monetary policies, 220, 225–26;
adopting an existing currency, 226–29;
devaluation and inflation rates and, 18;
international currencies and, 227
monetary sovereignty, xxxi, 227–28
monetary unions. See currency unions
money: nature of, 3–6;
production and, 5–7;
as standard of value, xxvii–-xxviii, xxix, xxxiv
money flows, technology and, 9
Mortgage Bank of Uruguay, 125–27
multilateral lenders, 115–16
Netherlands, business cycles, 213–14
nominal devaluations, economic growth and, 70–79
North American Free Trade Agreement (NAFTA), 59
offshore financial systems, 31
optimal currency theory, 197, 225–26;
business cycles and, 205–13;
closed versus open economy, 202;
conditions, 198t;
currency manipulation and, 199;
developing countries and, 217–18;
diversity and, 221–23;
dollarization and, 232–34;
external shocks and, 203, 222–23;
faults, 197–98;
foreign trade and, 200;
geography and, 198–99;
globalization and, 200;
intranational regions and, 203–5;
market size and, 232–34;
point of view of, 201;
quality of currency and, 230–31;
roles of money and, 198–99;
services, 220;
(p.254) short-term capital inflows and, 223;
size of economy, 202–3, 221–23;
spontaneous dollarization and, 200–201;
stability and, 223–24;
substitution effects, 221–22;
trade and, 223;
United States and, 205;
vagueness of, 203–5;
value standards and, 200
Pacific region: competitiveness, 67;
financial depth, 28–31
Pakistan, 42–44, 45, 46
Panama, 122, 129, 190–92;
banking system, 191;
canal, 192;
current account deficit, 190;
El Salvador and, 215–16;
external shocks, 190–91;
fiscal deficits, 190;
interest rates, 190;
negative shocks, 190
Papua New Guinea, 240–41
Parente, Stephen L., 55–56;
Barriers to Riches, 55–56
Parsley, David C., 223
pesification, Argentina, 129
Pinochet government, 139
Porter, Michael, 55–56;
Competitive Advantage of Nations, 55–56
poverty, financial crises and, 43–44, 186–87
Prescott, Edward C., 55–56;
Barriers to Riches, 55–56
prices: devaluation and, 71–72;
optimal currency theory and, 204
purchasing power parity (PPP), xxxviii, 70–72, 101f3, 158–60, 207f12, 237–43
rates of exchange. See exchange rates
real wages, economic growth and, 74–76
redistribution of wealth, 80–81, 161, 185–87
regional currencies, 147, 229–30
relative price fluctuations, banks and, 138–39
Rose, Andrew K., 225
Russia: currency deposits, 30t, 31, 41t;
devaluation and, 69t
seigniorage, xxvi, 131, 132–34;
El Salvador and, 134
short-term capital inflows: “fear of floating” and, 111–13;
optimal currency theory and, 223
Singapore, competitiveness, 55
size of economies, 202–3
South Asia, financial depth, 28–31
sovereignty, currency and, xxxi, 227–28
spontaneous dollarization, xxxi, xxxiv;
Brazil, 93–96;
crisis risks and, 125;
currency matching and, 46–49;
currency mismatches and, 125–28;
financial depth and, 28–31;
interest rates and, 31–32;
International Monetary Fund (IMF) and, 46;
prices and, 32;
Uruguay, 125–28, 130;
standard of value, 225t;
liquidity trap and, 14;
transfer of, 16–20. See also dollarization
sterilization, 85–87, 169–70;
Asia, 86;
Brazil and, 87–106, 90t;
Eastern Europe, 86;
inflation rates and, 86–87;
South Asia, 85–86;
Venezuela, 145
Sub-Saharan Africa, competitiveness, 67
substitution effects, xxviii, 16–17, 217–18, 221–22, 224–25, 230
optimal currency theory and, 221. See also income effect
tesobonos, 147–48
Thailand: competitiveness and, 61–62, 63t–64t;
crises, financial, 151–54;
currency runs, 151;
current account deficit, 152, 185;
devaluation effects, 183–85;
financial crises, 173–74;
interest rates, 151;
international liquidity, 152–53;
manufacturing industries, 181–82;
prices and reserves, 152f
tradable currency, xxxiii, 108, 172, 231
tradable goods, 11, 72, 141, 181
(p.255) trade distribution, devaluation and, 216–17
Treatise on Money (Keynes), 6–7
Turkey, currency deposits, 31
unemployment, 5–6, 10–12, 186–87, 193, 204–5, 214
devaluation and, 79–81. See also employment
Unidad de Poder Adquisitivo Constante (UPAC), 45
Unidades de Fomento (UFs), 44
United States (U.S.): gold and, 8, 231;
macroeconomic problems, 230–31;
optimal currency theory and, 205. See also dollar, U.S
Uruguay: Argentina and, 130–31;
dollar deposits and devaluations, 34–35;
spontaneous dollarization and, 125–28, 130
variables, real versus nominal, 40–44
Venezuela, 31;
financial crises, 144–46, 173, 176f;
policies, 145
wealth, redistribution of, 80–81, 161, 185–87
Wei, Shang-Jin, 223
World Bank, 115;
Global Development Finance database, 108