1887

OECD Working Papers on International Investment

Selected studies on international investment and investment policy prepared for use within the OECD. They address such issues as investment agreements, dispute settlement, fair and equitable treatment, most favored nation treatment, and corruption.

English

Assessing the effectiveness of currency-differentiated tools

The case of reserve requirements

This paper provides the first comprehensive analysis of benefits and side-effects of foreign-currency differentiated reserve requirements for a sample of 58 countries from 1999 to 2015. Departing from the existing literature on effectiveness which used binary variables to measure policy changes, the intensity of reserve requirement adjustments is captured by using the gap between foreign and local currency rates to isolate the impact of differentiation net of volume effects.

The findings show that increasing the gap between FX and local currency-denominated reserve requirements is generally effective in reducing currency mismatch and dollarisation in banks’ balance sheets, notably through a reduction in the share of banks’ FX liabilities to total liabilities and in banks’ net FX positions. The findings also show that a higher gap is associated with a broader reduction in capital inflows, in particular portfolio debt inflows and flows to non-banks. Little evidence of domestic or international circumvention, with risks shifting to other sectors or countries is visible.

English

Keywords: macro-prudential policies,, dollarisation, banking regulation, differentiated reserve requirement
JEL: G28: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: Government Policy and Regulation; F3: International Economics / International Finance; F38: International Economics / International Finance / International Financial Policy: Financial Transactions Tax; Capital Controls; E58: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Central Banks and Their Policies
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error