Us $ Used As Currency In Other Countries

[mbkudu]

I just recently returned from a ten day trip to El Salvador. Before I flew there, I looked on www.xe.com to check the currency exchange. The national currency was listed as the Colon at 4.75 to one US$.

When I arrived I was totally surprised that only the US$ is used there; no more local currency for the past couple years. I was told that the government chose this route to encourage foreign investment. It has, however, caused inflation to rise somewhat, affecting the poor. To me it still seemed very cheap for everything.

So my question is, will this benefit the country in the long run because they are matched with a stable world currency? If so, then why don't more countries do this as well? I'm sure pride and nationalism must play some part in keeping a nation's

currency.

[CMguy]

Hello Mbkudo

I was just reading a few details about the dollar you might find interesting

to see a few other countries using the U.S. currency see the "International Use" section on this link dollar

[ProThaiExpat]

National pride aside, international trade, it seems to me, would be the issue.

If the U.S. decides to allow its currency to weaken against its trading partners inorder to enhance export trade, as another country using U.S. dollars, your country would likwise have "its currency" devalued, which might not be a good economic move for your economy at the time.

Surrending such an important economic control would seem to be very important. Japnan, for instance, has been making massive dollar buys in an attempt to keep the yen from becoming too strong against the dollar and hurting Japan's massive export business to the U.S.

The U.S.'s efforts to get China to stengthen its currency against the dollar is clearly import-export business related.

[mbkudu]

I'm wondering if all this could be leading to a world currency in the next 50 years say, who knows? It has already happened in Europe.

[mbkudu]

Hello Mbkudo

I was just reading a few details about the dollar you might find interesting

to see a few other countries using the U.S. currency see the "International Use" section on this link dollar

Thanks CMGuy, the link was very interesting!

[samran]

If a nation has its own currency it means it can control its own interest rates via the central bank. This means that the central bank can establish a relatively high interest rate during an upturn to ensure that the economy doesn't overheat and become inflationary, or if during a downturn, it can lower the interest rate to encourage spending.

Using a foreign currency means you have no real say on the levels of economic growth and inflation in your country

[Axel]

In Vietnam the US$ is accepted basically in all a places frequented by foreigners.

Change is given in $ or Dong at a reasonable exchange-rate.

Funny enoough, before the US lifted the embargo, when no US-citizen was allowed to visit the country the $ was dominating.

Taxis at the beginning had the meters in US$.

Going out at night, at that time and carrying dong (1 $ = 11,000 VND)

meaned carrying a plastic bag the size of a brick stone for some US$ 50-value.

Today it is changed in as much as higher denominations are printed. Half million dong = 1 note (present exchange rate $=16,000) and the government want use of the own currency for national identification, taximeters are changed.

[duke69]

these countries are looking for stability in international trade and looking for investments.

Investing in a country where the currency kills your PL with forex losses is something that nobody wants.

China peg, Malaysia peg, some other countries did not want to loose their face, but the $ is the main currency. Vietnam is the best example, the government will never peg the dong to the $ (comunists who won war against USA and hate them), but the country needs to attract investments and tourists = $ is the main currency in trade.

In Indonesia you are allowad (if multiational) to own a company and have all the general ledger in US$ (this is what we did in our group). In this case you reduce the risk of foreign exchange losses.

In all these countries, anyway, real estate and land is always in US$ or local currency equivalent to US$: In Brazil you buy an House with the value in US$ and when you pay: just convert the actual $ value in local currency.

Argentina teached the world how dangerous this could be: a peg (if not well managed) might bring a country to collapse. The Argentinian pesos (per 1:1 to $) was already devalueted before the "big blast", and for international trades 2 years earlier multinational just wanted L/C and payment n US$ ...... after 2 years the per went to 4:1!!!

[mbkudu]

I guess in Thailand's case, when the Baht was at 25 to the dollar, they had no choice but to let the baht float. It was painful at first, but I think is better than leaving it pegged like some countries still do.

The point that Samran brought up about not being able to regulate interest rates

when a country doesn't use its own currency, seems like a big disadvantage. I guess they figure the influx of foreign investment will offset this.

[konangrit]

Good question, Mb,

I guess that most of the countries which use the $ (or some in Europe which use the Euro) have wildly fluctuating currencies which no-one trusts. Generally more an indication of people power than government policy. I forsee a time in the future when there will be very few minor currencies as people head for the security of the Dollar, Euro, Yen, Pound and maybe Swiss Franc. IMO no future for any other currencies except for maybe the Yuan if it is ever floated. Look at the charts for the THB/USD over the last year ..... closely linked to the USD already.