The impact of dollarization on the

Accessed July 15, As for the passive measures aimed at creating a favourable market environment and conditions, we would like to note the following.

global dollarization

In the case of El Salvador however, dollarization does not seem to have improved economic development. When requesting a correction, please mention this item's handle: RePEc:exp:finnce:vyi::p They will be useless at best, or, at worst, provoke unfavourable consequences, for example when clients are forced to get disadvantageous loans in the national currency or banks bear additional credit risks they cannot internalise2.

Benefits of dollarization

When requesting a correction, please mention this item's handle: RePEc:exp:finnce:vyi::p The fact that dollarization results, to a significant extent, from monetary policies that cannot restrain inflation is illustrated by country comparisons Figures 3 and 4. By adopting the US dollar as its official currency, El Salvador has ceded its authority over money supply and interest rates to the Federal Reserve. If economic players do not believe that the recent good results of a macroeconomic policy would be reversed the medium term, dollarization may not go down even if the policy has been changed fundamentally. Moreover, placing the responsibility of boosting exports solely on currency depreciation would potentially neglect other ways to promote exports. The problem is, without trust, that new currency will have no value. Some economists insist that dollarization should be explained not only by inflation but also uncertainties as to the effective yield of the assets denominated in the national currency arising due to volatile inflation [4]. In this connection, the de-dollarization strategy is fundamental and forms the basis not only for the monetary, prudential and financial market development strategies in Belarus, but the entire economic policy. Such cases have occurred in the past in Argentina and Venezuela.

In particular, these measures should help banks to expand their balance sheets by promoting instruments denominated in the national currency, developing domestic financial markets, and eliminating uncertainties relating to long-term interest rates.

Dollarization is not a sole remedy for all economic problems, but neither is having a national currency.

Dollarisation def

Some economists insist that dollarization should be explained not only by inflation but also uncertainties as to the effective yield of the assets denominated in the national currency arising due to volatile inflation [4]. Featured Photo: U. Proponents of dollarization also refer to another advantage: currency substitution prevents the Central Bank from having its own monetary policy. Another argument favoring dollarization is that it lowers interest rates and stimulates investment. Accessed July 14, The most important and perhaps disappointing part is that some economists believe a shift away from the dollar is not possible. This, in turn, helps to improve financial stability since it creates space for enhancing the flexibility of the exchange rate and economy as a whole and, at the same time, conditions to maintain stabilised prices and inflation expectations and improve trust in the national currency and monetary policy. In the case of El Salvador however, dollarization does not seem to have improved economic development. The problem is, without trust, that new currency will have no value. The experience of other countries suggests that commercial banks view retail and short-term lending as the most promising segments for de-dollarization and are ready to cooperate in introducing restrictions, which are necessary to this end [8]. Creating a fully-functioning hedging mechanism is also extremely important to form a favourable financial market environment and conditions conducive to the reduction of potential foreign exchange risks, and to increase the use of the national currency by foreign investors, exporters and domestic borrowers. For additional news and analysis on Latin America, please go to: LatinNews.

To this end, the sides approved a joint action plan in mid envisioning that by the use of foreign currencies in payments between residents would be reduced significantly and that taxes, customs duties, rents, tariffs and other payments would be untied from the U.

The inability to foresee a sharp and significant impairment of the exchange rate makes borrowers accept extreme foreign exchange risks, on the one hand, and induces lenders to provide loans in foreign currencies, on the other hand.

The third-level active measures stimulate the use of the national currency by regulating the degree of differentiation of the standards and requirements for financial transactions in different currencies and different segments of financial markets, as well as pricing rules.

effects of dollarization on an economy

This, in turn, helps to improve financial stability since it creates space for enhancing the flexibility of the exchange rate and economy as a whole and, at the same time, conditions to maintain stabilised prices and inflation expectations and improve trust in the national currency and monetary policy.

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Investigating the Impact of Dollarisation on Economic Growth