Dollarization and Re-Dollarization
Dollarization may have been the best thing to happen to Zimbabwe since independence. This is not because the state of dollarization is desirable (it is actually detrimental in the long term), but that the actions a government has to take to get out of it are. What is it? Dollarization (also known as currency substitution or currency pegging) is when a nation pegs its currency against another (i.e. the dollar) or completely adopts that other currency as legal tender. This is ideally a short to medium-term state. It is normally implemented to save economies that are on the verge of collapse because the local currency there has lost its function as a store of value and its characteristics of limited supply and acceptability. These casualties are associated with hyperinflation. Some nations that have dollarized before are Ecuador and El Salvador. Hyperinflation is a result of fiscal indiscipline. A direct result of government printing too much money. Therefore, inflation ...