Question

The currency of Philip’s country had fluctuated for many years. The value of the currency in the forex market had dwindled and seemed ready to decline further. His country decided to forego its own currency and adopt the US dollar. Which process has Philip’s country followed here? Philip’s country has followed the process.

Answer 1

Answer:

Philip's country has followed the process of Dollarization.

Explanation:

Dollarization is the process of adopting a foreign currency instead of it own domestic currency. It is not necessary to adopt United States Dollar as your substituting currency in Dollarization. Any stable currency can be used instead of the domestic currency. Countries move towards the Dollarization when they have a weak domestic currency and they are in a threat of low buying power, and unstable economic environment. All these factors lead a country to go for substituting its domestic currency and choose a stable currency to control inflation and other unstable economic activities of the country. In this example, the value of currency of John's country depreciated over time and is expected to depreciate more in the coming months, so they went towards the process of Dollarization.