domestic credit expansion (DCE)

a monetary aggregate that is sometimes used by the INTERNATIONAL MONETARY FUND in requiring monetary restraint on the part of a member country with a balance of payments deficit as a condition of access to the Fund's resources. The main elements of DCE are made up primarily of the annual rate of change of the domestic MONEY SUPPLY

(defined in a number of possible ways) and annual rate of change of external borrowing by the private and public sectors. Under a FIXED EXCHANGE-RATE SYSTEM, excessive monetary expansion, either by an increase in the money supply or overseas financing, can lead to domestic price levels rising at a faster rate than trade partners, resulting in a balance-of-payments deficit. It follows, therefore, that monetary restraint (or, in the last resort, a currency DEVALUATION) is necessary to restore balance-of-payments equilibrium. Under a FLOATING EXCHANGE-RATE SYSTEM, tight control of monetary expansion is less urgent, it is argued, because divergences in domestic price levels between countries will be offset by exchange rate movements. See PURCHASING POWER PARITY THEORY.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

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International Monetary Fund

References in periodicals archive

Favourable asset-price movements, in turn, improve national fiscal indicators and encourage domestic credit expansion, exacerbating structural weaknesses in the domestic banking sector.

Argentina's 100-year bond issue tells a tale

After keeping the rate unchanged, the central bank said that it could resort to other measures to control domestic credit expansion.

-Central bank of Turkey maintains rate

Eoe1/4EoOil driven liquidity and domestic credit expansion gave way to vibrant non-oil sector growth with finance, real estate, construction and services sectors contributing a third of growth, which rose from an average four per cent in the 90s to seven per cent in the boom time,Eoe1/4A[yen] said the report.

Gulf economies to stay oil-reliant: Merrill Lynch

In the UAE, the GCC's most diversified and open economy, domestic credit expansion, high population growth (6 percent), infrastructure spending and the vibrant non-oil sectors (8.2 percent) supported growth (6.8 percent) in 2008.

GCC growth forecast revised downward

However, domestic credit expansion will lead to a decrease in foreign reserves, but may contribute a zero or positive effect on domestic output depending on the degree of wage indexation.

The policy assignment principle with wage indexation *

This was expected to leave enough scope for meeting the genuine credit requirements of the private sector within the safe limits of domestic credit expansion dictated by the need to bring down inflation.

An overview of economic and financial developments in 1994-95

This, together with the marked slowdown in domestic credit expansion to the public sector, brought the growth of total domestic credit down to 10.6 per cent in 1991, below the target and nearly one-half the average growth rate of the previous ten years.

Macroeconomic policies in 1991 and 1992

The growing share of bonds in the financing of the government deficit and the slower domestic credit expansion to the private sector, partly offset by higher borrowing from abroad, largely explain the deceleration in liquidity growth since mid-1991.

Spain

Domestic credit expansion to the non-state sector will be held to 10 per cent.

Chronology of main economic events

Domestic credit expansion proved so useful that new forms of money were allowed to appear--e.g., credit cards and the rest--and commercial lending practices reached the astonishingly shoddy point exemplified in the Penn Square fiasco.