Question

Which countries are not dollarized? Compare the economy between dollarized countries and non-dollarized ones.

Answer 1

Dollarisation is a process in which a country adopts to US dollar as a legal currency along with its domestic currency and used in market just like its own official currency . Non dollarised countries are which that don't use US dollar as their legal tender along with the domestic currency .

Dollarisation usually happens in developing countries as their own currencies are unstable and less demanding globally hence dollarisation improves a weak currency to become stable and risk free for investors in a dollarised country . A non dollarised country on the other hand is free from foreign economic influence as they don't have to depend on the US dollar. Dollarisation in underdeveloped and developing countries which undergo high inflation may chose to US dollar to lessen the burden on its domestic currency and help the country to come out of economic crisis . For example countries like Panama , Zimbabwe , Ecuador etc became dollarised and could wisthstand the their economic crises . A non dollarised country enjoys monetary autonomy that is if the dollar value drops it may not have any impact over its economy since it is not overdependent on the US dollar. A non dollarised country has to bear the transaction costs where as the dollarised country is free from the transaction costs which helps its economy to be financially Integrated . Convertible currency can have some adverse effects on the dollarised country whereas for the US on the other hand benefits from seigniorage . For dollarised countries investors may be inclined to invest as US dollar operates as legal tender. In dollarised countries locals may have to borrow money at high interest rates . Dollarised countries lose their influence over their own monetary policy . Dollarisation may increase default risks ,it may protect a country from devaluing it's domestic currency ,administrative costs will be lesser and lower interest rates for dollarised countries ,for non dollarised countries there are some advantages like they are beneficial that they don't get affected when the US economy topples and faces crisis . To conclude dollarisation is not entirely beneficial for any country but it's beneficial to the unstable economies that are affected by long standing inflation impacts.