Экономические науки/2. Внешнеэкономическая деятельность
Student Boiko A. I.
Donetsk national university of economics and trade named after Mykhailo
Tugan-Baranovsky, Ukraine
Dollarisation in
modern world: pros and cons
Financial dollarisation, defined as the holding by residents of foreign
currency
assets and liabilities,
has been placed at the forefront of the policy debate in developing economies.
The reasons include its alleged influence on the conduct of monetary policy
and, most prominently, the deleterious impact of exchange rate depreciations on
the solvency of dollar debtors (the balance sheet effect)[1].
Dollarization can occur
*unofficially, without formal legal
approval
*semiofficially (or officially
bimonetary systems), where foreign currency is legal tender, but plays a
secondary role to domestic currency
*officially, when a country ceases
to issue the domestic currency and uses only foreign currency [2].
The biggest economies to have officially
dollarized as of June 2002 are Panama (since 1904), Ecuador (since 2000), and El Salvador (since
2001).
The New Zealand
dollar is used in: Cook Islands, Niue, Pitcairn Island,Tokelau.
The Australian
dollar is used in: Kiribati Nauru,
Tuvalu [3].
There
are both advantages and disadvantages of dolarisation.
The benefits are as follows:
Fostering macroeconomic stability: dollarisation is expected to foster macroeconomic
stability by solving the credibility problem that arises when a domestic
central bank is unable to pre-commit itself to a low rate of inflation.
Lower risk premia: If risk premia are owing to currency and not to
country risk, dollarization should lead to lower risk premia, because a sharp
and sudden devaluation of the domestic currency against the anchor currency is
ruled out by definition.
Domestic financial sector development: dollarisation is expected to support the
development of a country’s financial sector, because a stable currency is a
precondition for financial development, leading to strong and steady economic
growth.
Elimination of transaction costs: The elimination of costs of exchanging the
domestic currency into the currency of the anchor currency is the most visible
effect of dollarisation, with the cost savings being proportional to the number
of transactions conducted in foreign currency.
Stronger economic and financial integration: dollarisation is expected to foster a country’s
economic integration with the economy of the issuing country.
The
costs are:
Loss of an adjustment mechanism: With dollarisation, a country loses the use of
the monetary policy instrument as a mechanism enabling it to adjust in the wake
of asymmetric shocks and to react to fluctuations in the business cycle that
are not in line with those in the anchor country.
Loss of the lender of last resort function: With dollarisation, the domestic authorities lose
the ability to respond to a sudden run on bank deposits by acting as a lender
of last resort.
Loss of seigniorage: The most direct cost of unilateral dollarization
is the loss of seigniorage revenues from issuing a domestic currency, as these
revenues will shift from the domestic monetary authority to the monetary
authority of the issuing country.
There are other five arguments that make up the
case against dollarisation:
1. Loss of sovereignty;
2. Loss of the exchange rate as a policy
instrument;
3. Loss of monetary policy;
4. Loss of a lender of last resort;
5. Fiscal preparedness.
References:
1. Yeyati E. L.
Financial Dollarisation: Evaluating The
Consequences [Electronic resource]. -
Access mode: http://www.utdt.edu/Upload/CIF_wp/wpcif-032005.pdf.
2. Dollarization // Academic dictionaries and encyclopedias [Electronic resource]. - Access mode:
http://en.academic.ru/dic.nsf/enwiki/139135/
4.
Winkler A., Mazzaferro F.,
Nerlich C., Thimann C. Official Dollarisation/Euroisation: Motives, Features
and Policy Implications of Current Cases [Electronic resource]. - Access mode:
http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp11.pdf