OPENNESS OF THE COUNTRY, CURRENCY SUBSTITUTION AND MONETARY POLICY

The author considers the influence of currency substitution on conducting of monetary policy, distinguishing here “small” and “big” countnes. Small countnes are affected by international capital flovvs and change of rates, thus it is presumed that this fact is reflected in the structure of central banks property. The author expects that in open economies (and that means in economies where currency substitution more easily appears-spread usage of foreign currency in money functions) the share of international assets reserves is higher than in closed economies. Using parallel econometric analysis and emphasizing its restrictions, the author concludes that in countnes with a small number of population and currency substitution there is a higher ratio of international reserves compared to reserve money.