Currencies in developing countries are not freely convertible; they show higher inflation and volatility levels and show periods of sharp appreciation and depreciation. These characteristics not only are a challenge for economic authorities, but also call attention to their ability to fully comply with the functions of money. Colombia, despite its disciplined monetary background, has not escaped from occasional queries about the convenience of keeping the Colombian peso. Just a few countries have chosen to fully replace their local currency with a foreign one in order to assume the entire functions of domestic currency, but there are many economies which have permitted partial dollarization. Based on international experience and Colombia’s characteristics, this paper concludes that financial dollarization would be costly, with limited and merely potential benefits.
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Volume (Year): 10 (2008) Issue (Month): 18 (January-June) Pages: 313-341 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: F31 - International Economics - - International Finance - - - Foreign Exchange F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
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