Financial De-dollarization: Is It for Real?

Some important events and trends in recent years have intensified concerns about FD. First, there is mounting evidence that FD has increased or remained stable despite declining inflation rates. Second, dollarization has greatly complicated the policy response in several crises and near-crisis episodes and, in some cases, has been singled out as the source of financial vulnerability that triggered a crisis. Third, the widespread shift from fixed to more flexible exchange rate regimes has altered the policy landscape, highlighting the prudential consequences of exchange rate risk. As a result, the policy debate about de-dollarization has heated up. Is de-dollarization a realistic goal? Is it worth the trouble? If so, how can it be pursued? Guided by these questions, this chapter tries to summarize where we stand on what remains a continuing debate.