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Dollarization

The problem.

Dollarization is the introduction of U.S. dollar to replace the national currency of a state. This is a case of currency substitution, where the dollar payment and transaction resources and to within the national territory is recognized as a store of value. A distinction must be informal and official dollarization. Dollarization is when the inhabitants of a country using the currency issued by a foreign state in parallel or in place of their own.

Dollarization may be:

so unofficially, without formal legal approval

in a semi-official, (officially, biometric system), where foreign currency is to be declared legal tender, but has a minor role than the national

officially, when a country ceases to coin money and is used only for foreign currency

The term dollarization does not necessarily refer to the use of U.S. dollar, but, more generally, that for every foreign currency is preferable to a national currency. However, begins to spread the word euroisation. Until 1999 it was not considered possible to official dollarization, as long as some nations have not adopted. The main advantage of dollarization is to ensure greater financial stability and lower inflation. (Agenor 18)

The most important officially dollarized economies to June 2002 are those of: Ecuador (since 2000 ), El Salvador (since 2001) and Panama (since 1904 ). In August 2005 , the U.S. dollar , the ' euro , the New Zealand dollar , the Turkish lira , the Russian rubble , the Swiss franc and Australian dollar are the only currencies used by other countries in the process of dollarization. (Caprio . 43-53 )

The goals.

There are mainly three reasons for the occurrence of dollarization. First, colonization, and secondly, when a country imports, regardless of this medium, and thirdly as a means to combat the crisis.

Dollarization per se is not a new phenomenon. Turn of the century wore globalization, tariff reduction, freedom of capital, the increase of international trade to the development of capital markets and real dollarization and on. There is a debate in the science of how globalization is forcing small farms to make its monetary policy. The so-called "Impossible Trinity" principle is that free capital flows, a fixed exchange rate and an independent monetary policy can not occur together. Now this is applicable for example for Ecuador. (O'Brien. 24 )

A special feature is played by the access of developing countries on foreign loans, their debt in foreign currencies have to absorb. According to Roy Tobias provided by the fact that developing countries and highly indebted countries can not absorb its own currency loans in the Declaration of dollarization. Even countries with persistent current account deficits are vulnerable to dollarization. He also explains that are overvalued in general, the currencies of developing countries because of high debt. The term "dollarization" is particularly marked in the course of the 1990s, due to the increasing number of countries that have replaced their legal tender by other currencies (particularly the U.S. dollar). The number of countries whose investment in a foreign currency account for more than 30% of total assets has increased from 7 in 1990 to 46 countries in 2000.  (Balino 25 )

The dollarization term includes different forms of dollarization. In the literature, the dollarization in two phenomena is considered unterteilt. Dollarising currency substitution , or "currency substitutability and as an asset substitution or" asset substitutability. So there are different definitions of ...