Central bank balance sheet expansion in a dollarized economy: the case of Ecuador
A textbook argument in favor of adopting another country’s legal tender is that it imposes strong constraints on money creation and therefore fiscal dominance. In Ecuador, an officially dollarized economy since January 2000, a series of accounting practices and subsequent changes in legislations app...
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| Formato: | article |
| Lenguaje: | spa |
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2023
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| Acceso en línea: | https://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/article/view/418 |
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Agregar Etiqueta | _version_ | 1858113931389698048 |
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| author | Erráez, Juan Pablo |
| author2 | Reynaud, Julien |
| author2_role | author |
| author_facet | Erráez, Juan Pablo Reynaud, Julien |
| author_role | author |
| collection | Revista Cuestiones Económicas |
| dc.creator.none.fl_str_mv | Erráez, Juan Pablo Reynaud, Julien |
| dc.date.none.fl_str_mv | 2023-06-30 |
| dc.format.none.fl_str_mv | application/pdf text/html |
| dc.identifier.none.fl_str_mv | https://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/article/view/418 10.47550/RCE/33.1.1 |
| dc.language.none.fl_str_mv | spa |
| dc.publisher.none.fl_str_mv | Banco Central del Ecuador |
| dc.relation.none.fl_str_mv | https://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/article/view/418/330 https://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/article/view/418/337 |
| dc.rights.none.fl_str_mv | Derechos de autor 2023 Cuestiones Económicas https://creativecommons.org/licenses/by-nc/4.0 info:eu-repo/semantics/openAccess |
| dc.source.none.fl_str_mv | Cuestiones Económicas; Vol. 33 Núm. 1 (2023): Revista Cuestiones Económicas 2697-3367 2697-3367 reponame:Revista Cuestiones Económicas instname:Banco Central del Ecuador instacron:BCE |
| dc.subject.none.fl_str_mv | Central bank Balance sheet expansion Fiscal dominance Banco central expansión del balance predomino fiscal |
| dc.title.none.fl_str_mv | Central bank balance sheet expansion in a dollarized economy: the case of Ecuador Expansión del balance del banco central en una economía dolarizada: el caso de Ecuador |
| dc.type.none.fl_str_mv | info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion Artículos de Investigación |
| description | A textbook argument in favor of adopting another country’s legal tender is that it imposes strong constraints on money creation and therefore fiscal dominance. In Ecuador, an officially dollarized economy since January 2000, a series of accounting practices and subsequent changes in legislations approved over the period 2009-2014 allowed an expansion of the Central Bank of Ecuador’s (CBE) balance sheet to finance the central government. At its peak, central bank financing of the government represented 10 percent of GDP. This resulted in large liabilities to the CBE that translated into low reserve coverage, putting the public and private financial systems and ultimately the dollarization regime at risk. In this paper, we first present the legal and accounting processes behind the expansion of the CBE’s balance sheet and some stylized facts. In the second section, we establish a stress test-like methodology to show how the expansion of the CBE’s balance sheet induced strong pressures on CBE’s liquidity. Ultimately, such liquidity stress at the CBE translated into high cash inflows needs, i.e., external debt, for the central government. |
| eu_rights_str_mv | openAccess |
| format | article |
| id | REVCUESTEC_afe2325fcbff673b9f18914a7e63e1f2 |
| identifier_str_mv | 10.47550/RCE/33.1.1 |
| instacron_str | BCE |
| institution | BCE |
| instname_str | Banco Central del Ecuador |
| language | spa |
| network_acronym_str | REVCUESTEC |
| network_name_str | Revista Cuestiones Económicas |
| oai_identifier_str | oai:estudioseconomicos.bce.fin.ec:article/418 |
| publishDate | 2023 |
| publisher.none.fl_str_mv | Banco Central del Ecuador |
| reponame_str | Revista Cuestiones Económicas |
| repository.mail.fl_str_mv | |
| repository.name.fl_str_mv | Revista Cuestiones Económicas - Banco Central del Ecuador |
| repository_id_str | |
| rights_invalid_str_mv | Derechos de autor 2023 Cuestiones Económicas https://creativecommons.org/licenses/by-nc/4.0 |
| spelling | Central bank balance sheet expansion in a dollarized economy: the case of EcuadorExpansión del balance del banco central en una economía dolarizada: el caso de EcuadorErráez, Juan PabloReynaud, Julien Central bankBalance sheet expansionFiscal dominanceBanco centralexpansión del balancepredomino fiscalA textbook argument in favor of adopting another country’s legal tender is that it imposes strong constraints on money creation and therefore fiscal dominance. In Ecuador, an officially dollarized economy since January 2000, a series of accounting practices and subsequent changes in legislations approved over the period 2009-2014 allowed an expansion of the Central Bank of Ecuador’s (CBE) balance sheet to finance the central government. At its peak, central bank financing of the government represented 10 percent of GDP. This resulted in large liabilities to the CBE that translated into low reserve coverage, putting the public and private financial systems and ultimately the dollarization regime at risk. In this paper, we first present the legal and accounting processes behind the expansion of the CBE’s balance sheet and some stylized facts. In the second section, we establish a stress test-like methodology to show how the expansion of the CBE’s balance sheet induced strong pressures on CBE’s liquidity. Ultimately, such liquidity stress at the CBE translated into high cash inflows needs, i.e., external debt, for the central government.Uno de los argumentos a favor de adoptar la moneda de curso legal de otro país es que ello impone fuertes restricciones a la creación de dinero y, por tanto, el predominio fiscal. En Ecuador, una economía dolarizada oficialmente desde enero de 2000, la aplicación de una serie de prácticas contables y posteriores modificaciones legales aprobadas en el periodo 2009-2014 permitieron expandir el balance del Banco Central del Ecuador (BCE) para financiar a la administración central. En su punto máximo, el financiamiento que recibió el gobierno por parte del BCE representó el 10 % del PIB. Esto generó importantes pasivos al BCE, que se tradujeron en una baja cobertura de reservas, lo cual puso en peligro los sistemas financieros público y privado y, en última instancia, el régimen de dolarización. En el presente documento, se presentan primero los procesos jurídicos y contables en los que se sustenta la expansión del balance del BCE, así como una serie de hechos estilizados. En la segunda sección, se establece una metodología similar a la de las pruebas de tensión para demostrar de qué forma la expansión del balance del BCE ejerció fuertes presiones sobre la liquidez de la institución. A la larga, estas tensiones de liquidez en el BCE generaron importantes necesidades de entrada de efectivo, esto es, deuda externa, que debió contratar el gobierno central.Banco Central del Ecuador2023-06-30info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersionArtículos de Investigaciónapplication/pdftext/htmlhttps://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/article/view/41810.47550/RCE/33.1.1Cuestiones Económicas; Vol. 33 Núm. 1 (2023): Revista Cuestiones Económicas2697-33672697-3367reponame:Revista Cuestiones Económicasinstname:Banco Central del Ecuadorinstacron:BCEspahttps://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/article/view/418/330https://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/article/view/418/337Derechos de autor 2023 Cuestiones Económicashttps://creativecommons.org/licenses/by-nc/4.0info:eu-repo/semantics/openAccess2023-07-07T21:34:40Zoai:estudioseconomicos.bce.fin.ec:article/418Portal de revistashttps://estudioseconomicos.bce.fin.ec/index.php/RevistaCEOrganismo de gobiernowww.bce.fin.echttps://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/oaiEcuadoropendoar:2023-07-07T21:34:40falsePortal de revistashttps://estudioseconomicos.bce.fin.ec/index.php/RevistaCEOrganismo de gobiernowww.bce.fin.echttps://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/oaiEcuadoropendoar:2023-07-07T21:34:40Revista Cuestiones Económicas - Banco Central del Ecuadorfalse |
| spellingShingle | Central bank balance sheet expansion in a dollarized economy: the case of Ecuador Erráez, Juan Pablo Central bank Balance sheet expansion Fiscal dominance Banco central expansión del balance predomino fiscal |
| status_str | publishedVersion |
| title | Central bank balance sheet expansion in a dollarized economy: the case of Ecuador |
| title_full | Central bank balance sheet expansion in a dollarized economy: the case of Ecuador |
| title_fullStr | Central bank balance sheet expansion in a dollarized economy: the case of Ecuador |
| title_full_unstemmed | Central bank balance sheet expansion in a dollarized economy: the case of Ecuador |
| title_short | Central bank balance sheet expansion in a dollarized economy: the case of Ecuador |
| title_sort | Central bank balance sheet expansion in a dollarized economy: the case of Ecuador |
| topic | Central bank Balance sheet expansion Fiscal dominance Banco central expansión del balance predomino fiscal |
| url | https://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/article/view/418 |