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Definition

dollarization

Dollarization is the adoption of a foreign country’s currency as legal tender for monetary transactions.

Unofficial dollarization means that citizens prefer the foreign currency for some transactions, although it may not be legal tender. Official dollarization means that the foreign currency becomes the preferred tender within the country, while the domestic currency may also be accepted. 

The usual reason for dollarization is to substitute a more stable currency for a less stable one. Dollarization frequently involves the United States dollar, although it can be based on other currencies, such as the euro.  Countries that use the U.S. dollar include El Salvador, Ecuador, the Marshall Islands, Micronesia, Palau, and the British Virgin Islands.

 

This was last updated in July 2013

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