Abstract
Financial dollarization has increased substantially in
 emerging markets in recent years. A material increase in financial
 dollarization may concern policy makers but it also serves as a cushion for
 banks and the states. Increase in foreign Exchange deposits may arise from the
 need to preserve purchasing power, speculation or liquidity concerns. This
 paper aims to shed light to the relation between foreign exchange deposits and
 factors such as sight FX deposits, USD/TRY parity, CPI, confidence ındex, VIX,
 TL deposits, dollar index via a VECM model. Sight FX deposits are found to be a
 positive and a statistically significant influencing factor on FX deposits;
 whereas, confidence index and CPI have a negative but a significant relation with
 FX deposits. Factors that have an influence on the increase in foreign Exchange
 deposits shall be closely monitored to mitigate the adverse effects of it. 
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