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Essay / Research Paper Abstract
This 10 page paper discusses dollarization in Latin America with specific attention on dollarization in Ecuador. Bibliography lists 15 sources.
Page Count:
10 pages (~225 words per page)
File: D0_HVDollar.rtf
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Unformatted sample text from the term paper:
always is.2 This process has been going on "unofficially" in Latin America for a long time; and Panama dollarized officially in 19033. Now questions are being raised as to
whether dollarization makes sense for other Latin American countries. This paper will discuss the pros and cons of the process, particularly with regard to Ecuador. Why Countries Make
the Switch As noted above, dollarization has been underway informally for many decades in some countries, but now it may become government policy as well. That begs the
question, why would a country abandon its own currency to adopt that of another nation? The quick answer is that it is one way of stabilizing a struggling economy (or
perhaps its better to say that if it works properly, it can stabilize an economy) because dollarizing is like adopting a "fixed exchange rate."4 The advantage of having a
fixed exchange rate is that it "sets a predictable price for foreign currency exchange, it provides the most stable atmosphere for international trade and investment."5 A fixed exchange rate
reduces cost and risk associated with trade and it encourages long-term investment by foreign investors, which is a vital stimulant to a developing economy.6 The most important facet of
a fixed exchange rate is that it "forces domestic monetary growth" which in turn forces inflation down to the level of that of the countrys trading partners.7 This is
vital, because if the inflation rate were out of control, the countrys exports would be priced out of the range of foreign markets, and imports would "flood in"; in addition,
a fixed rate is good for local borrowers because borrowing foreign currency is less risky than borrowing the local currency, and also because the lower inflation rate keeps interest rates
...