International Business
Capstone project

Submitted to: Dr. Steven Wright

May 5th, 2010

Dollarization, good or bad?

Roland Salameh (7964)

INTRODUCTION:

Exchange rate regimes occupy a central place in national economies and in the global economy. Dollarization, seen as an instrument against the volatile currency situation and the fluctuating exchange rate has gradually become an option for ending the crisis recommended by experts and international financial institutions, particularly in countries in trouble . Dollarization can be full or partial. Ultimate, it involves the abandonment of national monetary sovereignty and the adoption of a foreign currency. Partially, it involves the simultaneous use of the national currency and a currency in the currency practices of different countries.
Thus, dollarization is not only the exclusive use of the dollar. Similarly it does not indicate the degree of penetration of foreign currency in the national economy. However, the dollar remains the primary reserve currency billing and wording in financial transactions. And despite its fluctuations that cause strong repercussions on the global economy.
Indeed, before the Second World War, the financial world was none other than London, which relied on the strength of the pound sterling. If in the 70s, the conversion was the gold standard of the international monetary system, regulated by the Breton Woods institutions, the suspension of convertibility in 1971 led to the loss of the dollar's role as a reference.
The dollar continues to play a leading international role that goes along with the centrality of the U.S. economy in the system of trade intermediaries.
In the 80s, the interest savings focused on the role of exchange rate adjustments in programs to stabilize inflation. The old debates focused on the partial integration of the dollar in the national economy. However in the 90s, with globalization and free movement of capital, many