Dollarization

At the same time, change magnitude unofficial dollarization makes it easier for companies and individuals to "hide" transactions and evade tax liabilities. mayhap mord detrimental for nations, dollars often become part of an underground stinting system in which the cash is kept out of official impart and the preservation moves beyond the ability of the regime's ability to manage the notes effectively (Feige et al 5).

One of the biggest problems associated with the de facto dollarization of economies is the inability of analysts to determine how legion(predicate) dollars are actually contained within a particular economy at any particular time. This is due in king-sized part to the underground nature of de facto dollarization. Feige et al propose a st yardgy for estimating dollars in Latin American economies, and use these calculations to probe the performance of Latin American economies. What the authors conclude is that there comes a point when de facto dollarization becomes more economically viable than a getting even to the nation's own currency. This is the case, they suggest, in Argentina where the exchange rate would realize to shift significantly and to a level that is unlikely in the near future. As a result, some economies may set out that de facto dollarization leads to official dollarization. In these situations, official dollarization is the only way that the government can polish off a realistic opportunity to gain control over its currency, although this step heightens

DOLLARIZATION AND FINANCIAL INSTITUTION SOLVENCY

Dollarization has been adopted either in strong or in part by several Latin American countries with varying degrees of success. In general, dollarization has brought stability to these economies while lessen their ability to control their won monetary polity. The challenge allowing be in returning to national currencies once dollarization has occurred, or learning to function in an economy whose currency polity is dictated by distant and non always appropriate management.

Cohen also points out that dollarization makes the second country vulnerable to mash from the joined States or whatever country whose currency is utilize to act in accordance with the strategies of the currency manager.

Thus the United States brought economic pressure to bear in Panama when it want to oust General Noriega, a tactic that ultimately did not work and that resulted in the invasion of the country. However, the actions taken by the Reagan judiciary are generally credited with causing severe economic hardship on the nation because of its reliance on dollarization (Cohen 5).

thither are three types of dollarization that have occurred within economies in Latin America, according to Quispe-Agnoli: currency board, full dollarization and mixed monetary policies. In a currency board, the nation retains its own currency exclusively the government announces a specific exchange rate that it will honor relative to the dollar. In full dollarization, the national currency is abandoned in favor of the dollar. Hn mixed monetarx policy environments, nations may use a peg approach to gain certain objectives, such as a specific rate of inflation, but once those objectives are achieved, the currency may be allowed to float freely again (Quispe-Agnoli 5).

Bogetic, Zeljko. "Official or 'Full' Dollarization." worldwide Monetary Fund, 1999. Retrieved 15 May 2005 from: <>
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