Dollarization occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency.
Dollarization can occur
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.
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.
Even though these states are not recognized internationally, they exist de-facto.
Even though these areas may not be recognized internationally, they function as states in at least some aspects.