Advantages And Disadvantages Of Dollarization
Currency the one thing a country has full control over. The country can decide whether or not to implement new monetary policies or to even completely change their currency. In the past currency changes have only occurred when there was a change in the government, often this change replaces a failing currency with one that could support itself. However in recent years there has been a shift in currency changes, more countries are considering instead of making an entirely new currency to adopt a currency that already exists, in many cases it is the United States Dollar. This is called Dollarization. Dollarization is an issue that has drawn many debates over whether or not it is an option that can be considered for a country to better its economic …show more content…
Countries want to because they see it as a way to eliminate currency risk, to have a stable currency, to have price stability, to have easier trade, and to not have the dangers of currency exchange. These make dollarization attractive because then the country has less to worry about with its monetary policies or whether the currency will be stable. All these are seen as benefits to dollarization, there are also some benefits of dollarization that are not seen until a country actually goes through with …show more content…
This is also another advantage to dollarization. When a country switches to a stable currency from its unreliable one, they see an increase in local trade and international trade. Shu Lin and Haichun Ye said, in their article Dollarization Does Promote Trade in The Journal of International Money and Finance, that “Dollarization not only significantly increases bilateral US trade with dollarized countries, but promotes trade among dollar-zone countries as well” (Lin, 2010, p. 1130). In this they mean that when a country dollarizes it has increased trade not only with the United States and other countries that have gone through dollarization, but also with other countries “whose monetary systems and foreign accounts are oriented to the US dollar and occupy a subordinate place in relation to it” (Markov, 1979). The areas that a country can easily trade with increase when a country dollarize, this then has the country see an increase in trade since they are better able to trade with other
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