The Central Bank of Uruguay has published a policy report assessing financial dollarization and setting out its ongoing strategy to deepen financial intermediation in domestic currency. Uruguay has reduced excessive dollarization in debt and bank credit, but the report identifies further scope for progress, particularly in deposits. It finds that a stronger prudential framework, domestic currency financial instruments and the consolidation of inflation targeting have reduced vulnerabilities to external shocks and exchange rate fluctuations. The strategy organizes existing measures around four pillars: aligning incentives for financial intermediation, developing markets and instruments, improving information for financial decisions, and coordinating with financial system participants. As part of this agenda, a notification on the exchange rate risk associated with foreign currency deposits took effect Oct. 1. It alerts savers that exchange rate movements can increase or reduce the purchasing power of their savings in Uruguay even when the foreign currency balance remains unchanged.
Central Bank of Uruguay sets out four-pillar peso intermediation strategy as foreign currency deposit warning takes effect
The Central Bank of Uruguay has set out a four-pillar strategy to deepen financial intermediation in domestic currency, with further reductions in dollarization needed particularly in deposits. A notification effective Oct. 1 warns savers that exchange rate movements can change the domestic purchasing power of foreign currency deposits even when their stated balance is unchanged.