Question

Find another country who did not dollarize to compare to Argentina to analyze how dollarization helped or hurt Argentina.

Answer 1

Ans.

- Dollarization is the point at which a country begins to perceive the U.S. dollar as a medium of trade or lawful delicate alongside or instead of its domestic currency.

- Dollarization typically occurs when the nearby currency has gotten unstable and begun to lose its usefulness as a medium of trade for showcase transactions.

- Dollarization can have the two benefits and costs. It regularly results in upgraded fiscal and financial stability, but necessarily involves loss of monetary autonomy in money related strategy.

- Lets take the case of Argentina who has done dollarization :

o Dollarization helped Argentina to borrow at very low cost rate and also it helped Argentina to be very fast and deeply integrated to other financial markets in the world

o However the challenge that Argentina had is as we discussed before that , Argentina lost its rights of exercising independent monetary powers and that right will move to US because it is doing dollarization. In future if there are major shocks in the economy, Argentina will not be able to do the independence devaluation of the currency.

- On the contrary take the example of India, which is also developing country however it never did dollarization and it is effectively maintained the Indian rupee as floating currency and managed to grow the economy at steady state and has flexibility to maintain the value of Indian rupees by monetary measures.