Journal Article

Dollarisation in Sub-Saharan Africa

Juan-Sebastian Corrales, Patrick A. Imam, Sebastian Weber and Etienne Yehoue

in Journal of African Economies

Volume 25, issue 1, pages 28-54
Published in print January 2016 | ISSN: 0963-8024
Published online September 2015 | e-ISSN: 1464-3723 | DOI: https://dx.doi.org/10.1093/jae/ejv020
Dollarisation in Sub-Saharan Africa

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This article introduces an extended database on dollarisation in sub-Saharan Africa (SSA). We document the pattern of dollarisation in SSA economies over the last decade and assess the determinants of dollarisation in SSA compared with the rest of the world. In contrast to other regions, SSA has experienced an increase in dollarisation over the last 10 years, despite examples of successful de-dollarisation, such as Angola, Mozambique and Zambia. Traditional factors such as the optimal portfolio choice arguments contribute only little, while market development contributes most to explaining the variation of dollarisation in SSA. While these factors can account for a significant fraction of the dollarisation in SSA, there is still a non-negligible portion of dollarisation in SSA that is yet to be explained, suggesting that there is some unique feature, specific to SSA, which is not fully captured by traditional explanatory variables. Despite an improved macroeconomic environment, dollarisation remains elevated, likely due to the region's volatile history. This indicates that dollarisation should decline going forward provided that the recently gained stability is preserved.

Keywords: dollarisation; Sub-Saharan Africa; financial development; F31; F33; E4

Journal Article.  9697 words.  Illustrated.

Subjects: International Finance ; Money and Interest Rates

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