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Understanding Dollarization by Erick W. Rengifo, Emre Ozsoz

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2Pros and Cons of Dollarization

2.1Introduction

As defined in the previous chapter, dollarization refers to the use of a foreign money by economic agents (households, corporations and governments), for activities (unit of exchange, savings or unit of account) normally carried out in a local currency. Dollarization has its roots in serious economic problems that posed real threats to agents’ purchasing power in particular and their wellbeing in general. However, dollarization’s impact needs to be adequately understood in a more holistic way that involves analyzing not only the short and medium term effects of changing to a foreign currency, but also the long-term effects of such a change, while considering various socio-economic variables that ...

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