A conceptual analysis of the Currency Protected Deposit (CPD) scheme as a macro-financial stabilization instrument: Evidence from the depreciation–interest rate spiral

Abstract

This article examines the Currency Protected Deposit (CPD) scheme, introduced in December 2021, from the perspective of open economy macroeconomics. Rather than measuring the empirical performance of CPD, the analysis focuses on how the mechanism fits into the depreciation–interest rate dynamic and its implications for financial stability. The discussion draws on the Mundell-Fleming framework, the fear-of-floating hypothesis, exchange rate pass-through dynamics, and the literature on financial repression. CPD can be analyzed through overlapping dimensions. Fiscal exposure is the most visible. The exchange-rate protection feature follows, though its boundaries are not always clear. The expectation channel is more subtle and potentially more fragile. Considering these dimensions together enables evaluation of both individual saving behavior and broader financial stability dynamics. While the mechanism may reduce exchange rate volatility and dollarization pressures in the short run, it also raises medium-term sustainability concerns related to public finances and monetary conditions. For this reason, CPD is better understood not as a structural reform but as a stabilization tool introduced under crisis conditions. Its effectiveness, therefore, depends on the design of a coordinated exit strategy supported by monetary normalization, fiscal discipline, and consistent expectation management in order to preserve macroeconomic balance.