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DOLLARIZATION IN DEVELOPING COUNTRIES: RATIONAL REMEDY OR DOMESTIC DILEMMA?
Author(s) -
MELVIN MICHAEL,
PEIERS BETTINA
Publication year - 1996
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.1996.tb00622.x
Subject(s) - seigniorage , externality , liberian dollar , currency , economics , revenue , dilemma , international economics , issuer , network effect , monetary economics , business , developing country , finance , industrial organization , microeconomics , economic growth , philosophy , epistemology
This paper reviews the policy implications of dollarization in developing economies. It outlines channels of U.S. currency access abroad and illustrates progressing stages of dollarization for various country examples. It analyzes the costs of large seigniorage losses facing domestic governments vis‐a‐vis the U.S. issuer. Finally, it provides three explanations for the observed inertia in dedollarization following domestic stabilization policies: (i) high transactions costs of switching monies, (ii) dollar revenues related to illegal commercial activities, and (iii) network externalities associated with foreign currency usage.