De-dollarization of credit in Peru: The role of unconventional monetary policy tools

In this paper we document and empirically evaluate the use of unconventional monetary policy tools in Peru to reduce credit dollarization. Our empirical analysis uses the counter-factual test proposed by Pesaran and Smith (2012) and shows that both high reserve requirements, used counter cyclically since 2010, and the de-dollarization program put in place by the Central Reserve Bank of Peru (BCRP) since 2013 had statistically significant effects on reducing credit dollarization in Peru. The paper also discusses the impact on bank’s balance sheet of the complementary tools created as part of the de-dollarization program to inject domestic currency liquidity.