Benefits Of Dollarization

The purpose of implementing dollarization is to have a stable currency for the country. Some countries are very eager to find ways to achieve global economic stability and their own prosperity. The best solution to obtain the currency stability is to attach the country’s currency to a reliable and major convertible country. However, another way is to use the U.S. currency to replace the country’s currency for the stability of the economy of the country. This is call as Full Dollarization.

The country implements dollarization because of their floating currency. The country are willing to seek help by introducing dollarization in order to reduce the country risk, providing stable and safe economic activity between the countries across the

The foreign currency that the country using can be use to attract many investors as they will be fascinated to lesser problems with the better exchange rate and also more stable economy.

Besides reducing risk and protecting against inflation and devaluation, there are some compelling reasons for a country to decide to give up so much control over its economy.As we mentioned above, full dollarization creates positive investor sentiment, almost extinguishing speculative attacks on the local currency and the exchange rate. The result is a more stable capital market, the end of sudden capital outflows, and a balance of payments that is less prone to crises.

The country have to use an alternative way to stabilize the floating currency and that way is call the full dollarization. The country use this alternative way is to reduce the risk that the country will face and also provide stable and secure economic system. Most of the country that is currently in inflation tend to use dollarization to improve the country's

When a country have give up their currency, it means that the country have abandon their currency. This has let them have no ability to print its own money and also lose its ability to influence the world economy. It has also lose its right administer monetary policy and any form of exchange rate regime.

The central bank will loses its ability to collect the profit that gained from issuing coinage . Instead, the U.S. Federal Reserve collects the seigniorage, and the local government and gross domestic product (GDP) as a whole thus suffer a loss of income.

In a fully dollarized economy system, the central bank also loses its role as the lender of last resort for its banking system. While it may still be able to provide short-term emergency funds from held reserves to banks in distress, it would not necessarily be able to provide sufficient funds to overcome the withdrawals in the case of a run on deposits.

Another disadvantage for a country that is currently going for full dollarization is that its securities must be bought back in U.S. dollars. If the country does not have a enough amount of reserves, it will either have to borrow the money by running a current account deficit or find a means to gather a current account