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PS-AR-B-BCRA-NT-07


  

The effect of risk aversion in the evaluation of the default risk reduction due to full dollarization: comments on "The Pros and Cons of Full Dollarization" by Andrew Berg and Eduardo Borensztein

[Separata]. -- no. 7. --
Buenos Aires :

BCRA

, . -- . -- (Nota Técnica - BCRA)

  <Serie de Notas Técnicas> -- Se pueden bajar de Internet en la dirección del Banco: http://www.bcra.gov.ar

  "In a recent IMF Working Paper A. Berg and E. Borensztein (2000) assess the costs and benefits of full dollarization compared to its closest alternative: a currency board. They use Argentine data on currency and default risk spreads in the Eurobond market to illustrate the reduction in dollar interest rates that could come about due to the elimination of currency risk through full dollarization, i.e. the redemption of all peso notes in circulation through the use of the Central Bank reserves that back them. Using assumptions on the probability of default in the event of a currency crisis (that range from 10 per cent to 30 per cent) and the size of the devaluation in case of a currency crisis (that range from 20 per cent to 50 per cent) they show that the default spread could diminish in the range of 72-271 basis points, according to the particular combination of assumptions. In particular, the higher the probability of default in the event of a currency crisis and the lower the size of the devaluation, the higher is the reduction in the dollar spread (e.g.: with a 30 per cent probability of default in the event of a currency crisis and a 20 per cent devaluation in the event of a currency crisis, there would be a 271 basis points reduction in the sovereign spread)." (Introduction, p. 1)

  1. 
ARGENTINA
; 2. 
AMERICA LATINA
; 3. 
ESTADOS UNIDOS
; 4. 
RIESGO
; 5. 
ADMINISTRACION FINANCIERA
; 6. 
POLITICA ECONOMICA
; 7. 
CONVERTIBILIDAD
; 8. 
DOLARIZACION
I. II. III.

  (1) Inv.: PS-AR-B-BCRA-NT-07 S.T.: PS-AR-B-BCRA-NT-07
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U. Info. Inventario S.T. / Ubicación
PS-AR-B-BCRA-NT-07 PS-AR-B-BCRA-NT-07

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Escudé, Guillermo
The effect of risk aversion in the evaluation of the default risk reduction due to full dollarization: comments on "The Pros and Cons of Full Dollarization" by Andrew Berg and Eduardo Borensztein [Separata]. -- no. 7. -- Buenos Aires : BCRA, 1999. -- (Nota Técnica - BCRA)

-- Se pueden bajar de Internet en la dirección del Banco: http://www.bcra.gov.ar

"In a recent IMF Working Paper A. Berg and E. Borensztein (2000) assess the costs and benefits of full dollarization compared to its closest alternative: a currency board. They use Argentine data on currency and default risk spreads in the Eurobond market to illustrate the reduction in dollar interest rates that could come about due to the elimination of currency risk through full dollarization, i.e. the redemption of all peso notes in circulation through the use of the Central Bank reserves that back them. Using assumptions on the probability of default in the event of a currency crisis (that range from 10 per cent to 30 per cent) and the size of the devaluation in case of a currency crisis (that range from 20 per cent to 50 per cent) they show that the default spread could diminish in the range of 72-271 basis points, according to the particular combination of assumptions. In particular, the higher the probability of default in the event of a currency crisis and the lower the size of the devaluation, the higher is the reduction in the dollar spread (e.g.: with a 30 per cent probability of default in the event of a currency crisis and a 20 per cent devaluation in the event of a currency crisis, there would be a 271 basis points reduction in the sovereign spread)." (Introduction, p. 1)

1. ARGENTINA; 2. AMERICA LATINA; 3. ESTADOS UNIDOS; 4. RIESGO; 5. ADMINISTRACION FINANCIERA; 6. POLITICA ECONOMICA; 7. CONVERTIBILIDAD; 8. DOLARIZACION I. Grubisic, Elena II. Cohen Sabban, Verónica III. Banco Central de la República Argentina

(1) Inv.: PS-AR-B-BCRA-NT-07 S.T.: PS-AR-B-BCRA-NT-07
Solicitante: