The Currency Co-Holding Puzzle

Last registered on December 20, 2024

Pre-Trial

Trial Information

General Information

Title
The Currency Co-Holding Puzzle
RCT ID
AEARCTR-0015029
Initial registration date
December 13, 2024

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
December 20, 2024, 1:10 PM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Region
Region
Region

Primary Investigator

Affiliation
Austrian Central Bank

Other Primary Investigator(s)

Additional Trial Information

Status
Completed
Start date
2022-09-27
End date
2024-12-16
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
Foreign currency usage is very common in some economies in Central, Eastern and Southeastern Europe, where especially the euro is used next to local currencies. In this project, I conceptualize the joint decision in which currency to save and in which to borrow: in local or foreign currency. I coin this decision currency co-holding. Using an international survey, I look at which co-holding combinations are common among which socio-demographic groups, i.e. to which individual characteristics they are correlated to. I am especially interested in the role of trust, risk tolerance and financial literacy, in particular the knowledge about potential risks stemming from foreign currency loans (FX-literacy). First data for the project were already collected in the 2022 wave of the survey. To uncover a potential causal channel from FX-literacy to currency co-holding preferences, I additionally conduct an information experiment in the current wave of the survey, which is in field in fall 2024.

The experiment intends to vary the knowledge about exchange rates and the potential risks arising from an exchange rate depreciation. After answering several financial literacy questions, including one on exchange rate literacy, survey participants are randomized into either getting further information on exchange rates or not. Subsequently, they are asked whether they would prefer to deposit money in local or foreign currency and in which currency they would prefer to borrow. In addition, they are asked about potential motives to borrow in a certain currency, depending on the choice they have made before.
External Link(s)

Registration Citation

Citation
Koch, Melanie. 2024. "The Currency Co-Holding Puzzle." AEA RCT Registry. December 20. https://doi.org/10.1257/rct.15029-1.0
Experimental Details

Interventions

Intervention(s)
I design an information treatment, which is supposed to vary knowledge about the concept of exchange rates. I want to test if that knowledge impacts the preferences in which currency to save and in which to borrow: in local or foreign currency. After answering a question on exchange rate literacy, respondents are randomized into two groups and depending on the group, receive a different follow-up question and with this different information.
Intervention (Hidden)
Intervention Start Date
2024-09-30
Intervention End Date
2024-11-12

Primary Outcomes

Primary Outcomes (end points)
"Currency co-holding", which takes values from 1 to 4 and then the share of respondents for distinct values
Primary Outcomes (explanation)
After the intervention, the currency preferences for saving and borrowing are elicited. First, respondents are asked about depositing a hypothetical amount that roughly equals about two times an average monthly salary in a savings account. They are asked whether
they would deposit the money in local or in any foreign currency. Afterwards, respondents are asked in which currency they would borrow the same amount of money in case they had to borrow it from a bank. Out of the two questions, I construct a composite variable, which takes four values, where
1 means that both deposits and loans are preferred to be held in local currency,
2 that deposits are preferred in foreign but loans in local currency,
3 that both are preferred in foreign currency and
4 that deposits are preferred to be held in local but loans in foreign currency.
The main goal of the experiment is to analyze the effect of the treatment on this variable.

Secondary Outcomes

Secondary Outcomes (end points)
1. Reason to prefer borrowing in local currency, if local currency was chosen in the previous question. Possible answer options:
1) The [LOCAL CURRENCY] is the official currency of [MY COUNTRY]
2) I trust the [LOCAL CURRENCY] more
3) Better loan conditions (better interest rate/ lower fees etc)
4) Foreign currency loans are too risky
5) It is not possible to borrow in foreign currency
6) Other reason

2. Reason to prefer borrowing in foreign currency, if local currency was chosen in the previous question. Possible answer options:
1) I believe that the [LOCAL CURRENCY] will be replaced by the euro soon
2) I do not trust the [LOCAL CURRENCY] enough
3) Better loan conditions (better interest rate/good exchange rate/lower fees etc)
4) Loans in [LOCAL CURRENCY] are too risky
5) Most/all of my income is denominated in a foreign currency
6) Other reason
Secondary Outcomes (explanation)
To better understand the motives behind currency co-holding preferences, and potentially how the treatment exactly changes preferences, I also ask respondents why they prefer to borrow in local currency or foreign currency, depending on their previous choice. I only ask about the borrowing and not the saving decision because I expect it to be more malleable by the treatment. Possible answer options were mirrored if possible. This can provide evidence if different preferences are still based on the same motive.

Experimental Design

Experimental Design
The control group is only asked how they would assess their knowledge on exchange rates. In contrast, the treatment group first gets a more detailed explanation what an exchange rate is and then, is asked how they would assess their knowledge too.The explanation itself is designed in such a way that it conveys the concept of exchange rates without priming people into either the savings or the borrowing frame but rather keeps a neutral frame. Moreover, it is relatively short to avoid interviewer fatigue (i.e. interviewers not reading out the full information) and respondent fatigue (i.e. respondents not listening to the full information).
Experimental Design Details
Randomization Method
1. For Czechia and the CAPI-interviews in Poland: randomization is done by computer automatically
2. For Serbia: randomization is done by the interviewer typing in a running number based on which the used tablet randomizes the questionnaire
3. For PAPI-interviews in Poland (ca. 20% of the total interviews): paper questionnaires are stacked randomly

In every case, the randomization is stratified by interviewer
Randomization Unit
See pre-analysis plan attached
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
There are usually more than 50 interviewers per country
Sample size: planned number of observations
1,000 respondents will receive the intervention, given results from previous years around 2%-15% might refuse to answer the primary outcome questions
Sample size (or number of clusters) by treatment arms
In each country, the plan is to have 50% of the observations in the control and 50% in the treatment
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
From 3 to 8 percentage points
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number
Analysis Plan

Analysis Plan Documents

The Currency Co-Holding-PAP

MD5: f6e0e0fd0f6807f64d905d3c32ff6409

SHA1: 4ccbd1736c2d43ba560113c555978a849e3e18c0

Uploaded At: December 13, 2024

Post-Trial

Post Trial Information

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials