Monetary policy in a dollarised economy: The case of Peru *

Persistent high inflation in Peru during the 1970s led households to hold foreign currency as store of value. This process of dollarisation increased significantly during the hyperinflation of 1988–90. In the years that followed, a wide-ranging package of reforms in the financial system and in the conduct of monetary and fiscal policy were introduced to bring a halt to the hyperinflation. But despite nearly a decade of subsequent economic stabilisation, the decrease in dollarisation has been slow: by June 1999 two thirds of domestic banking deposits were still denominated in dollars, only ten percentage points below their level in 1991.