De-dollarizing the Peruvian economy: a portfolio approach

This study examines the phenomenon of financial dollarization in Peru, particularly its persistence and the mechanisms that drive it, with the aim of evaluating alternatives for its de-dollarization. It uses data on the Peruvian economy from 1992 to 2003, including measures of dollarization and a cointegration analysis to explore the relationship between the dollarization of deposits and loans. The methodology consisted of an error correction model (ECM) and a portfolio approach, which shows that depositors’ decisions are influenced by inflation volatility and real devaluation. The results reveal that causality runs from deposits to loans and that a regulatory framework that incentivizes the dollarization of assets could mitigate dependence on foreign-currency financing. The conclusions suggest that to move toward de-dollarization, it is crucial to modify the deposit insurance system and manage exchange rate volatility, highlighting the importance of monetary policy measures to encourage the use of the domestic currency. (Abstract and audio: Department of Economic Publications)