• Mihail Petkovski Ss. Cyril and Methodius University, Faculty of Economics – Skopje
  • Kiril Jovanovski Ss. Cyril and Methodius University, Faculty of Economics – Skopje
  • Suzana Makreshanska Ss. Cyril and Methodius University, Faculty of Economics – Skopje
Keywords: credit and deposit dollarization, financial crises, exchange rate depreciation, CEE region, Macedonia


This paper explores the relationship between financial dollarization and financial crises. The unhedged foreign currency borrowing and foreign currency depreciations are often seen as a major threat to financial stability, especially in CEE countries where the credit and deposit dollrization is high. The paper consists of four parts. The first part deals with the determinants of financial dollarization. The second part analyses the dimensions of financial dollrization in Emerging Europe. The third part discusses the role of financial dollarization during several financial crises (Mexico, East Asia, Argentina, recent global financial crisis). The fourth part focuses on potential risks emerging from financial dollarization in Republic of Macedonia, under different scenarios for devaluation of national currency.


Arteta, C. O. 2005: Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Currency Mismatches in Bank Intermediation? Berkeley Electronic Journals in Macroeconomics, Topics in Macroeconomics, 5, 1, 1-28.

Basso, S. H. - Calvo-Gonzales, O. - Jurgilas, M. 2007: Financial Dollarization and the Role of the Banks and Interest Rates. ECB WP No.748.

Bank Austria 2009: Annual Report 2008.

Bank Austria 2009: Interim Report at 31 March 2009.

Bogoev, J. 2011: What Drives Bank Lending in Domestic and Foreign Currency Loans in a Small Open Transition Economy with Fixed Exchange Rate? The Case of Macedonia. Comparative Economic Studies, 53, 2, 307-331.

De Haas, R. - Naaborg, I. 2006: Foreign banks in transition countries: To whom do they lend and how are they financed? Financial Markets, Institutions & Instruments, 15,4, 159–199.

Echingreen, B. - Haussmann, R. 2005: Other People's Money: Debt Denomination and Financial Instability in Emerging Market Economies. The University of Chicago Press, Chicago and London.

EBRD 1995–2010: Transition Reports.

EBRD 2008: EBRD Banking Data, mimeo.

EBRD 2010: Developing Local Currency Finance Transition Report 2010 European Bank for Reconstruction and Development, London.

Erste Bank 2009: Sector Report CEE Banks – CEE 4-2 Euroland.,

Erste Group 2009: Annual Report 2008.

Erste Group 2009: Interim Report Q1 2009.

Haiss, P., R. - Rainer, W. 2011: Credit Euroization in CESEE: The Foreign Funds. Croatian National Bank.

Hake, M. 2011: Determinants of Foreign Currency Loans in CESEE Countries: A Meta-Analysis. 69th East Jour Fixe of the OeNB Vienna.

Hale, G. - Arteta, C. 2009: Currency crises and foreign credit in emerging markets: Credit crunch or demand effect? European Economic Review.

Hausmann, R. – Panizza, U. 2003. On the determinants of Original Sin: an Empirical Investigation. Journal of International Money and Finance.

Ize, A. 2005: Financial Dollarization Equilibria: A Framework for Policy Analysis. IMF Working Papers 05/186, International Monetary Fund.

Ize, A. - Levy-Yeyati, E. 2003: Financial dollarization. Journal of International Economics, 59, 2, 323-347.

Krugman, P. 2010: Crises. Unpublished.

National Bank of Macedonia 2010: Financial stability report – 2009.

Nitsche, W. 2010: The Vienna Initiative/European Bank Coordination Initiative: Assessment and Outlook. BMF Working Paper 4. Austrian Federal Ministry of Finance (BMF).

Petrova, A., L. 2008: What Drives Credit Dollarization in Transition Economies? Journal of Banking and Finance, 32, 858-869.

UniCredit Group 2009: Banking in CEE: Challenging Times but Recovery on the Horizon.

UniCredit Group 2011a: CEE Banking Outlook.

UniCredit Group 2011b: Banking in CEE: the new Growth Model.