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Articles What is Dollarization? Dollarization is the process by which a country adopts the U.S. dollar as its primary or only official currency. It is also referred to as dollarisation or currency substitution. Dollarization is an extreme form of currency substitution, whereby a country completely abandons its own currency in favor of the U.S. dollar. Dollarization is a controversial issue, as it raises questions about the sovereignty of a nation and the need for a central bank. It has been adopted by some developing countries, but is more often used as a temporary measure to stabilize a country’s economy. Pros and Cons of Dollarization The primary benefit of dollarization is that it provides stability to a country’s economy. By using the U.S. dollar as its currency, a country’s exchange rate is fixed to that of the U.S. dollar, meaning that the value of the currency will not fluctuate due to market forces. This eliminates the need for a central bank to set interest rates and manage the currency, thus allowing the country to focus on other economic policies. The primary downside to dollarization is the loss of sovereignty. By adopting