DOLLARIZATION:
- An Economic situation in when citizens of a country use foreign currency in parallel to or instead of the domestic currency.
- Foreign currency in Dollarization does not mean usage of U.S dollar only but the use of any foreign currency.
- Zimbabwe adopted dollarization after the collapse of the Zimbabwean dollar.
Benefits of Dollarization:
- Stable (foreign) Currency will attract investment and growth.
- As the foreign currency can be earned only through exports and foreign capital inflows, exports would be promoted and conditions for capital inflows would be eased.
- There is no possibility of monetization of deficit and so there is control on wasteful expenditure.
Negatives of Dollarization:
- Central banks will loose control on monetary policy and can't influence the money supply
- Central banks can't devalue currency to promote exports
DE-DOLLARIZATION:
- Reduction in the dependency upon Dollar as a reserve currency by nations, medium of exchange, or basis for international trade
- De-dollarization is in Favour of other currencies or alternative systems, like regional and national currencies, or even digital currencies like cryptocurrencies.
- Russia-Ukraine war and call of BRICS for an alternative currency have given a voice for de-dolallarisation.
- US Pres in his opening remarks has also warned BRICS for this.
Hard currency /Safe-Haven Currency / Strong Currency:
- Globally traded currency issued by developed countries.
- These Currencies remain stable
- These currencies draw power from the political & Economic stability of the country.
- Theses currencies are held by nations for trade purposes.
SOFT CURRENCIES:
- Currencies whose value fluctuates in the Exchange rate markets.
- Fluctuation is on account of Country's political and economic instability.
- Countries avoid holding these currencies for trade purposes.
- Developing countries usually hold these currencies.
