BuyFindarrow_forward

Principles of Economics 2e

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

Solutions

Chapter
Section
BuyFindarrow_forward

Principles of Economics 2e

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

Can you think of any major disadvantages to dollarization? How would a central bank work in a country that has dollarized?

To determine

The major disadvantages to dollarization and the way central bank works in a dollarized country.

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 disadvantages are as follows. A major disadvantage to a dollarizing country is that the country loses autonomy over its monetary policy which is central bank’s tool to control money supply, inflation and interest rates in the economy. Also, the dollarizing country faces loss of seigniorage (Seigniorage is the real revenue from printing money. It is used to finance fiscal deficit).Apart from this, price signals through domestic currency are distorted. The country replacing its currency with the other faces the risk of its central bank losing the identity as the lender of the last resort...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Explain the relationship among saving, investment, and net capital outflow.

Brief Principles of Macroeconomics (MindTap Course List)

(Cooperatives) How do cooperatives differ from typical businesses?

ECON: MICRO4 (New, Engaging Titles from 4LTR Press)

Would you rather have a savings account that pays 5% interest compounded semiannually or one that pays 5% inter...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Define assets, liabilities, owners equity, revenues, and expenses.

College Accounting (Book Only): A Career Approach

Explain how safety stock is used to deal with demand uncertainty.

Cornerstones of Cost Management (Cornerstones Series)