in a narrower sense, the introduction of the U.S. dollar as a means of payment, as occurred in Argentina between 1991 and 2001; in Argentina, the peg to the U.S. dollar was replaced in July 2001 by a peg to a basket of currencies consisting of the U.S. dollar and the euro. – In a broader sense, also the legally permitted (legal) or actual (real, unofficial; unofficial) use of a foreign currency – such as the EUR – in another country, as in Montenegro. In detail, a distinction is made between – payment dollarization: the foreign currency is predominantly used as a means of payment, – financial dollarization: the foreign currency is used as a means of investment, and – full dollarization: wages and prices in a country are expressed in a foreign currency, and – de facto dollarization: the USD is widely used as a secondary currency in business transactions. – Dollarization is always a sign that economic entities do not trust their own currency. Only credible governance and a central bank policy strictly aimed at preserving the currency’s massta properties are capable of halting or reversing dollarization. Otherwise, even very high threats of punishment will not bring about a return to the domestic currency, as experience in Latin America has shown. – See anchor currency, adoption constraint, euroization, monetary refusion, Gresham’s law, capital flight, minor currency, regional money, currency, commodity money, means of payment, cigarette currency. – For more information, see IMF: Economic Issues 24: Full Dollarization. – See also ECB Monthly Bulletin, February 2003, pp. 53 ff.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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