Our World

Dollarization

In Geo the other day we talked about dollarization and I wanted to know a little more about it. I found that there are a few countries in Latin America that have been completely dollarized and some that are partially dollarized. The dollarization- the change from their currency to the dollar, helps a country economically becuase it helps lower interest rates and grow consumer credit. It also helps companies or those who have to make financial agreements internationally. The transaction rates are lower and financial dealings are easier overall. To many countries that are closely linked with the United States economically consider dollarization, this could be a good way to lower costs of borrowing money and also to help the hyperinflation and devaluation of currency that is signiture to many countries in Latin America. But it has its cons as well; countries like El Salvador sometimes have to work harder and lower their costs becuase not all of its neighbors have been dollarized. Sometimes there can be a middle ground of only limited dollarization where there is both the local currency and the U.S. dollar used. The dollar can be used as a type of insurance in case there is extreme fluctuation in the local currency.

http://www.economist.com/world/la/displayStory.cfm?story_id=1357779

posted by Anonymous @ 3/05/2006 03:22:00 PM