Dollarization occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency.

Dollarization can occur

  • unofficially, without formal legal approval
  • semiofficially (or officially bimonetary systems), where foreign currency is legal tender, but plays a secondary role to domestic currency
  • officially, when a country ceases to issue the domestic currency and uses only foreign currency.

The term dollarization is not only applied to usage of the United States dollar, but also generally to the use of any foreign currency as the national currency.

Until 1999, official dollarization received practically no attention because it was considered politically impossible. Since then it gained prominence after several countries have considered and implemented it as official policy. The major advantage of dollarization is to promote greater financial stability and a lower inflation rate.

The most important officially dollarized economies as of June 2002 were Ecuador (since 2000), El Salvador (since 2001) and Panama (since 1904).

As of August 2005, the United States dollar, the euro, the New Zealand dollar, the Swiss franc and the Australian dollar were the only currencies used by other countries for official dollarization. In addition, the Turkish new lira, the New Israeli Shekel, and the Russian ruble are used by internationally unrecognised but de facto independent states.

List of officially dollarized economies

U.S. dollar


Russian ruble

Even though these states are not recognized internationally, they exist de-facto.

New Zealand dollar

Australian dollar

Swiss franc


Even though these areas may not be recognized internationally, they function as states in at least some aspects.

See also

External links

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