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Despite significant strides in financial development over the past decades, financial dollarization, as reflected in elevated shares of foreign currency deposits and credit in the banking system, remains common in developing economies. We study the impact of financial dollarization, differentiating across foreign currency deposits and credit on financial depth, access and efficiency for a large sample of emerging market and developing countries over the past two decades. Panel regressions estimated using system GMM show that deposit dollarization has a negative impact on financial deepening on average. This negative impact is dampened in cases with past periods of high inflation. There is also some evidence that dollarization hampers financial efficiency. The results suggest that policy efforts to reduce dollarization can spur faster and safer financial development.

Banks and Banking --- Finance: General --- Inflation --- Money and Monetary Policy --- General Financial Markets: General (includes Measurement and Data) --- Financial Institutions and Services: General --- Economic Development: Financial Markets --- Saving and Capital Investment --- Corporate Finance and Governance --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Financial Markets and the Macroeconomy --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Price Level --- Deflation --- Monetary economics --- Finance --- Banking --- Macroeconomics --- Dollarization --- Financial sector development --- Credit --- Bank deposits --- Monetary policy --- Financial markets --- Money --- Financial services --- Prices --- Financial services industry --- Banks and banking --- Angola