An econometric investigation of dollarization in egypt

Abstract EN

Egypt has experienced large increases in the share of foreign currency deposits in broad money.

What could explain this rise? Engle-Granger cointegration and error-correction modeling along with Johansen-Juselius cointegration technique are used to establish the long-run relation between the ratio of foreign currency deposits to total liquidity (dollarization ratio) and different measures of the opportunity cost of holding these deposits.

Empirical results imply that Egyptians hold foreign currency deposits as a store of value rather than as a medium of exchange, i.e.

Egypt is subject to dollarization but not to currency substitution as previously thought.