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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Why would a nation “dollarize”—that is, adopt another country’s currency instead of having its own?

To determine

The reasons for a nation to dollarize.

Explanation

Dollarization is the phenomenon where a country uses the currency of another country in addition to or in place of its own currency. For example, British Virgin Islands, Caribbean Netherlands, East Timor, etc. use US dollar as their currency. And, Cambodia, Iraq and Uruguay use both US dollar and their own currencies as the legal tender.

When a nation dollarizes, i.e. adopts the currency of another nation, the following advantages come along:

  1. Dollarization enhances stability in the economy − currency risk nearly disappears,
  2. ...

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