Global Implications of Dollarizing Economies to Attain Monetary Stability Dollarization is when one country abandons its own currency in favor of another countrys currency. This is good because it will provide a stable currency but unfortunately the country who changed its currency has no monetary independence and no power to print currency. This means that the country controlling the currency may not keep in mind the affect actions may have on the secondary countrys economy. This is an example of a fiscal policy because it deals with the way a country handles its money. Other examples of fiscal policies are floating currencies, pegged or currency board, and a monetary union. The two latter have what we call fixed exchange rates.
This is when currency rates dealing with trade is regulated and doesnt differ trade from trade. It helps the currency remain stable and dependent for businesses. A currency board is one example of a fiscal policy that has a fixed currency exchange. This situation is when a local currency is used but to instill stability the local currency is backed by another currency held by a central bank. One reason this system brings stability because a currency board cant print money without The Netherlands has a rather interesting monetary order because of their environment. They have a current system where the local currency is Netherlands guilders, gulden, or florins and this has had a fixed exchange rate with the US dollar since 1989 of 1.79 gullden to US$1.
The Term Paper on Single Currency Countries European Union
Enlargement and Deepening of EU The original six members established the European Community in 1957: West Germany, France, Italy, Netherlands, Belgium and Luxemburg. The main reason behind this unification was a specific response to a series of problems, which confronted a group of countries in Western Europe in the immediate aftermaths of 1945. Unification offered Western Europe a means of ...
There environment makes this interesting because Netherlands was one of eleven countries to enter the European Union(EU), a monetary union of European countries. This is important because the union just introduced a common currency of the euro witch has a fixed rate of 2.20371 guilders per euro. The euro will replace the local currency in consenting countries for all I dont believe that the Netherlands has had a balance of payment crisis in the recent past because their was a Dutch economic boom in 1996 that continued to 1997 and ever since 1989 the local currency has had a fixed exchange rate with the US dollar. At the end of the economic boom the government was enjoying an increase in tax revenue which led to increased prosperity and a sufficient reserve. This boom has affected the inflation rates. The risk of inflation is greater now then it was but even with one of the highest inflation rates in Europe, the average inflation of 2.5 percent is not yet cause for alarm.
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