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Understanding Dollarization by Erick W. Rengifo, Emre Ozsoz

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4The Impact of Dollarization on Banking Systems

4.1Introduction

In partially dollarized economies, the impact of dollarization on the banking industry is of particular interest to economists and academics, and receives special attention in literature.

The reason for such interest begins with the very nature of the phenomenon. In an economy where more than one currency is used, the banking system and other economic agents adapt to incorporate the adopted currency as a means of payment or unit of account alongside the local currency.

In dollarized economies it is not unusual for locals to open bank accounts in foreign as well as in local currencies. Even ATMs in such economies are designed to accept and dispense foreign currency as well as the ...

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