Managing Systemic Liquidity Risk in Financially Dollarized Economies

Dollarized economies have experienced in recent years a number of severe banking and currency crises in which runs on bank deposits, mainly dollar deposits, have played a major role.2 The recent Argentinian currency and financial crisis and its tidal waves throughout the region, notably in Uruguay and Paraguay, has brought home the realization that dollarization can greatly complicate crisis management and create major financial vulnerabilities.3