Dollarization

Dollarization occurs when a country adopts or heavily relies on the US dollar as its official or unofficial currency instead of its own. This can happen through formal policies or spontaneously, as people and businesses prefer using dollars for stability and widespread acceptance. It aims to reduce inflation, currency devaluation risk, and encourage trade, but it also limits the country’s ability to control its monetary policy. Essentially, dollarization ties a country’s economy to US monetary conditions, which can bring stability but also reduces economic autonomy.