Managing credit in dollarised economies: The effective but asymmetric effects of foreign currency reserve requirements, by Eugenia Andreasen and Victoria Nuguer
For VoxEU
Emerging markets with partially dollarised financial systems are particularly vulnerable to global financial cycles. This column examines how reserve requirements on foreign currency deposits can help mitigate credit booms induced by capital inflows. Focusing on Peru between 2008 and 2017, the authors combine microdata with a calibrated macro model to show that foreign currency reserve requirements reduce aggregate credit growth, with heterogeneous effects across banks depending on their exposure to foreign funding. These results underscore the value (and complexity) of macroprudential regulation in dollarised economies.As global financial cycles intensify and become more synchronised, emerging market economies (EMEs) remain exposed to volatile capital inflows and sudden stops (Miranda-Agrippino and Rey 2020, Sedik and Nier 2015). This vulnerability is especially pronounced in countries with partially dollarised financial systems, where foreign currency (FX) deposits serve as a key transmission channel. Traditional policy tools may be insufficient to buffer these spillovers, raising the importance of macroprudential instruments that can act as circuit breakers, as discussed by Rey (2013) and Klein and Forbes (2013). Macroprudential policies can help enhance monetary independence and reduce the risk of crises in the face of global financial spillovers. Among these tools, reserve requirements on FX deposits have been actively used in countries like Peru, Uruguay, and Bolivia. With few exceptions (e.g. Ahnert et al. 2021, Aguirre and Repetto 2017), limited research has been performed in this area.
Peru provides a compelling case to assess the effects of this type of policy. The country has long exhibited high financial dollarisation. While reforms and inflation targeting helped reduce dollarisation from 80% in 2001 to under 40% by 2017, FX deposits remain significant. Following the Global Financial Crisis, global monetary easing led to large capital inflows, much of it via FX deposits. In response, the Central Bank of Peru actively used foreign currency reserve requirements, recalibrating these requirements to curb excessive credit growth and preserve financial stability.
To examine the effects of these policies, in our recent paper we combine an empirical analysis using Peruvian bank-level data with a DSGE model featuring financial frictions and heterogeneous banks (Andreasen and Nuguer 2025). The evidence shows that foreign currency reserve requirements effectively reduce aggregate credit growth. However, their impact is not uniform: banks with different exposures to FX funding react differently, triggering redistribution in credit supply across institutions.
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ABOUT THE AUTHORS
Eugenia Andreasen is an Assistant Professor in the Department of Economics at the University of Chile since 2020 and a member of the Monetary Policy Group (GPM). She received her Ph.D. and M.Sc. in Economics from the European University Institute in Italy.
Her research interests are primarily in macroeconomics and international finance, with a special focus on sovereign default, capital controls, and macroprudential policy. Her work has been published in leading journals such as the Journal of Monetary Economics, the Journal of International Economics, and the IMF Economic Review. Before joining the University of Chile, Eugenia worked at the World Bank, the Inter-American Development Bank, and the Ministry of Economics in Argentina.
Victoria Nuguer is an Assistant Professor in the Center for Economic Research (CIE) at ITAM since 2024. She was a Senior Economist at the Inter-American Development Bank (IDB) from May 2017 until February 2024, where she has worked on macroeconomic and financial policy issues across Latin America and the Caribbean. She received her Ph.D. in Economics from École Polytechnique Fédérale de Lausanne in Switzerland and her bachelor’s degree from the Universidad de Buenos Aires in Argentina.
Her research interests lie in macroeconomics and international finance, with a focus on financial transmission mechanisms, dynamic stochastic general equilibrium (DSGE) models, and the interaction between monetary and macroprudential policy. Her work has been published in leading journals such as the American Economic Journal: Macroeconomics and the Review of Economic Dynamics. Prior to joining ITAM, Victoria held research positions at the Bank of Mexico and contributed extensively to policy work at the IDB.
