The Journal of Economic Studies and Policies

The Journal of Economic Studies and Policies

Iran's Rank in the degree of currency substitution among 27 countries

Document Type : Original Article

Authors
Mohammad Lashkary 1
Abbas Arab Mazar 2
1 Assistant Professor of Payame Noor University
2 Associate Professor of Shahid Beheshti University
Abstract
Currency substitution refers to a situation where a nation' citizens prefer to hold foreign currency, instead of domestic currency, in their asset portfolio. There are snotty reasons for the occurrence of currency substitutions. The major reasons are: persistent national currency depreciation, the continuation of high inflation, economic instability, a negative real iniceest rate capital flight due to legal and illegal migrations, and rise in the goods smuggling activities. This phenomenon is seen in both developed and developing countries. In developed countries currency substitution occurs asymmetrically and bilaterally. However, in developing countries currency substitution exists unilaterally reducing the eflecm of monetary. policies. This paper compares the degree of Iran's currency substitution with degree of currency substitution in other 26 countries. The findings show that among 27 countries under investigation scoring 83.5 percent of substitution Bolivia ranks top. Iran with 38.4 percent ranks 12th among 27 nations. And Angola with 6.3 percent ranks 27th in the degree of currency substitution. in order to prevent a expansion of this phenomenon following measure arc proposed: 1-inflation controlling policy should he give priority 2-more appropriate investment opportunities should be created to mobilize the surplus money (savings) to be invested in economy's profitable sectors instead of being convwrted into  dollar and other foreign currencies 3- to a possible extent exchange rate volatilities should be minimized to reduce the incentives for substituting domestic cunrncy with n foreign currency. 4- Certain measures should be adopted to help official interest rate m the banking system exceed the inflation rate.
Keywords
currency substitution
nollarization
degree of currency substitution
currency deprecation ranking
Iran
منابع: فارسی
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