Chapter

Dollarization and Euroization in Transition Countries: Currency Substitution, Asset Substitution, Network Externalities, and Irreversibility

Edgar L. Feige and James W. Dean

in Monetary Unions and Hard Pegs

Published in print March 2004 | ISBN: 9780199271405
Published online August 2004 | e-ISBN: 9780191601200 | DOI: http://dx.doi.org/10.1093/0199271402.003.0014
 Dollarization and Euroization in Transition Countries: Currency Substitution, Asset Substitution, Network Externalities, and Irreversibility

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The chapter examines the extent, causes and consequences of transition countries’ use of foreign currency as a co-circulating medium of exchange and store of value. Using new estimates of foreign cash in circulation, we obtain unique measures of currency substitution, asset substitution, and dollarization, and examine the consequences of network externalities for hysteresis and irreversibility. Finally, we examine factors that could lead some transition countries -- most of which are joining the European Union in 2004 -- to euroize officially, joining existing members of EMU, and others to euroize unilaterally, i.e., without joining EMU.

Keywords: accession countries; asset substitution; currency substitution; dollarization; European Monetary Union; irreversibility; multilateral euroization; network externalities; unilateral euroization; transition countries

Chapter.  7174 words.  Illustrated.

Subjects: Economic Systems

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