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DO FOREIGN CURRENCY DEPOSITS PROMOTE OR DETER FINANCIAL INTERMEDIARY DEVELOPMENT IN LOW‐INCOME COUNTRIES? AN EMPIRICAL ANALYSIS OF CROSS‐COUNTRY DATA
Author(s) -
KUBO Koji
Publication year - 2008
Publication title -
the developing economies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.305
H-Index - 30
eISSN - 1746-1049
pISSN - 0012-1533
DOI - 10.1111/j.1746-1049.2008.00066.x
Subject(s) - currency , harm , inflation (cosmology) , developing country , business , economics , financial system , monetary economics , international economics , economic growth , physics , theoretical physics , political science , law
Foreign currency deposits (FCD) are prevalent in many low‐income developing countries, but their impact on bank lending has rarely been examined. An examination of cross‐country data indicates that a higher proportion of FCD in total deposits is associated with more private credit only in inflationary circumstances. FCD can lead to a decline in private credit below a certain threshold level of inflation. Given that FCD exhibit persistence, deregulating them in low‐income countries could cause more harm than good to financial intermediary development in the long term.