Economy Lesson: Dollarization, a third way for Greek Crisis?

Tommy, one of our comenters, yesterday was surprised as he saw that Greek bailout arrived in form of €110 bn help and said that probably European Union and IMF will never get back the money. The exclusion or not of Greece from Eurozone made a lively discussion, but some experts suggested a third way: Dollarization.

• What's dollarization?

Is the process of changing the currency of a country to a foreign one, or use a foreign currency in parallel of the domestic currency.

• Benefits

The benefits of a dollarization process are numerous, being the main benefit a greater stability in the value of the new currency in exchange or addition of the domestic currency and also promoting fiscal discipline. This is generally used to stop inflation, reducing buying power of inhabitants of a country.

Other lesser reasons are to promote diplomacy with other countries using the same currency, or because the country is surrounded and/or have a big immigration of near countries, such as Andorra.

• Drawbacks

The country 'dollarized' loses his influence on his own currency, as they adopted other one instead of the domestic one.

• Countries using a foreigner currency

List of countries using U.S. Dollar:

British Virgin Islands, Cambodia (Cambodian Riel and US Dollars), East Timor, Ecuador, El Salvador, Liberia, Marshall Islands, Federated States of Micronesia, Palau, Panama, Turks and Caicos Islands, Zimbabwe

List of countries using U.S. Dollar:

Andorra, Kosovo, Monaco, Montenegro, San Marino, Vatican City.


Would have Greece had to change Euro to U.S. Dollar instead of asked for a 'Rescue package'? Share