This entry was posted
on Friday, January 27th, 2012 at 4:47 am and is filed under Forex Trading.
You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
2 Responses to “Q&A: How does a country make a new currency?”
No….I won’t go for new currency…my countrymen are so smart that they will bring back the security woes.
i shall simply go for dollarization.
Under official dollarization the local currency is completely replaced by the dollar, with the possible exception of coinage. That means domestic banks only accept dollar checking accounts and issue dollar loans. Federal Reserve notes are legal tender and the only form of paper money recognized by the government.
Before its latest political and economic crisis, Argentina operated under a currency board system that maintained an exchange rate of 1:1 between the dollar and the peso. That required holding sufficient dollar reserves to fully back the pesos in circulation. The dollar was recognized as legal tender along with the peso. Argentina has since abandoned the peg to the dollar and gone to a floating exchange rate for the peso.
In the wake of the Asian and Brazilian economic crisis, Ecuador was unable to avoid a deep recession and banking crisis. In March 1999 the government froze deposits in the entire banking system as the value of the sucre dropped. A year later, after much political turmoil, and with the help of the IMF in structuring its financial system, Ecuador adopted the US dollar as its official currency. This will be an important test of dollarization under very difficult conditions.
January 27th, 2012 at 4:49 am
dollarization or Eurorization.
January 27th, 2012 at 5:27 am
No….I won’t go for new currency…my countrymen are so smart that they will bring back the security woes.
i shall simply go for dollarization.
Under official dollarization the local currency is completely replaced by the dollar, with the possible exception of coinage. That means domestic banks only accept dollar checking accounts and issue dollar loans. Federal Reserve notes are legal tender and the only form of paper money recognized by the government.
Before its latest political and economic crisis, Argentina operated under a currency board system that maintained an exchange rate of 1:1 between the dollar and the peso. That required holding sufficient dollar reserves to fully back the pesos in circulation. The dollar was recognized as legal tender along with the peso. Argentina has since abandoned the peg to the dollar and gone to a floating exchange rate for the peso.
In the wake of the Asian and Brazilian economic crisis, Ecuador was unable to avoid a deep recession and banking crisis. In March 1999 the government froze deposits in the entire banking system as the value of the sucre dropped. A year later, after much political turmoil, and with the help of the IMF in structuring its financial system, Ecuador adopted the US dollar as its official currency. This will be an important test of dollarization under very difficult conditions.