Dollarisation as an alternative exchange rate regime for emerging countries

Abstract

Over the past three decades exchange rate volatility has motivated a renewed search for stable and predictable exchange rate regimes. As a fixed exchange rate regime, dollarisation has increasingly been suggested as such an alternative, and is currently receiving renewed attention. This article is aimed at investigating the nature and rationale for such a regime, and also analysing its advantages and disadvantages. Furthermore, a critique of dollarisation, together with an analysis of its suitability for various circumstances and types of economies, is offered in order to determine its specific niche on the exchange rate spectrum. The regime is found to have merit, but to be applicable only to a limited number of countries with specific features.