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Understanding Dollarization by Erick W. Rengifo, Emre Ozsoz

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7Conclusions

Currency substitution or dollarization refers to the use of another country’s currency in exchange or in addition to local currency. Dollarization has become a widespread phenomenon in today’s global economy.

The dollarization phenomenon can be observed in different forms. Some countries may choose to give up their local currency altogether and adopt another country’s currency as legal tender. This type of dollarization is known as “official” or “dejure” dollarization and it is the type of currency substitution currently observed in more than ten countries.

There are many reasons for countries to fully dollarize. In the case of Andorra, Monaco or San Marino it makes perfect sense to adopt the Euro as legal tender. The relatively ...

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