The paper uses a unique survey of remittance-receiving individuals from Tajikistan to study the impact of policy awareness on consumer behavior. The results show that knowledge of deposit insurance encourages the use of formal channels for transmitting remittances and reduces dollarization. Given the size and importance of remittances in Tajikistan, improving financial literacy and better publicizing details of the social safety net may encourage a more frequent use of formal channels for transferring remittances and reduce reliance on foreign exchange for transaction purposes. This is likely to improve bank profitability, enhance financial stability, and improve access to finance.
DIprotection is considered (by depositors) to be credible/sufficient to safeguard their deposits. In both cases, depositors are likely to adjust their deposits (relative to the optimum) and/or seek additional insurance against potential deposit losses. To the extent that banking crises are accompanied by domestic currency devaluation, holding deposits in foreign currency could provide (partial) insurance against loss. This (perceived inadequacy in DI coverage) will lead to more (deposit) dollarization.
To date, no empirical study has looked at the implications