Title: Dollarization Definition
Headings: Dollarization
Dollarization
What Is Dollarization?
Key Takeaways
Understanding Dollarization
An Example of Dollarization

Content: It may also be the case that domestic authorities have proven themselves incompetent to manage their own monetary policy. Giving up an independent monetary policy can move the dollarizing country closer to an optimal currency area with the dollar. Small countries that engage in a relatively large volume of trade with and have strong economic ties to the U.S. will especially benefit. An Example of Dollarization
Zimbabwe ran a dollarization test to see if the adoption of foreign currency could stave off high inflation and stabilize its economy. Zimbabwe dollar inflation reached estimated annual rate of 250 million percent in July 2008. Zimbabwe's currency had become so worthless that it was widely being used as insulation and stuffing in furniture, and many Zimbabweans had begun either to adopt foreign currencies for transacting business or resorting to simple barter. The acting finance minister announced that the U.S. dollar would be accepted as legal tender for a select number of merchandisers and retailers. After the experiment, the finance minister announced that the country would adopt the U.S. dollar, by legalizing its general use in 2009 and later suspending use of the Zimbabwe dollar in 2015. Dollarization in Zimbabwe immediately worked to reduce inflation. This reduced the instability of the country's overall economy, allowing it to increase its citizens' buying power and realize increased economic growth.