To dollarize the economy or not to dollarize it. What is the dilemma? An economic interpretation. First part.

Allowing myself in this presentation a certain informality, and addressing to all those who might read these "economic interpretations" on this subject, I can tell you that I really "smoked one", as they say in my country to elucidate these economic issues of which I really understand very little but surely after finishing this post and the subsequent ones, I will understand much more certain movements that have been made in terms of the currency of my country Venezuela giving me a broad vision on these issues.

Now, and going into the matter and defining some concepts, I understand that a dilemma is a situation that has two possible answers but it is not known which one is the correct one because both are equally bad and possibly good, and this is the situation that we are facing with the idea that leads us to consider dollarizing the Venezuelan economy in the face of so much devaluation, reconversion, in addition to the cryptomenetization or the prompt virtualization of the currency, then, why not do the same and stop taking so many shortcuts and make legal an action that is already being openly practiced, which is the dollarization in all senses, from all institutions.

The dollarization of a country's economy occurs when a foreign currency is adopted for commercial transactions instead of the local currency, which can occur officially and unofficially, the latter occurs when without any government approval foreign currency, such as the US dollar, begins to circulate as a backing for commercial transactions and as a protection for investments and even salaries, as it happened in Venezuela.

However, it is also worth noting that other currencies of equal international stature can be adopted, such as the Japanese Yen or the Euro; however, there seems to be more emphasis on using the U.S. dollar, which is probably due to the fact that this country is the largest trading partner of most Latin American and Caribbean countries.
The local currency in an officially dollarized country is used for minor procedures, basic transactions and its value is very little. A curious case is the Balboa in Panama, which in paper money has the dollar but in cash it has the Balboa which is worth the same as the dollar, so talking about the Balboa and the dollar is the same thing, and the fact is that for a dollarized system no coins are issued in cash of less than the denomination of 1$, unlike in their country of origin, so the local currency is used.

On the other hand, it is necessary to analyze how the economy of a country that allows an unofficial dollarization must be, since the "domestic" currency, being below the DOLLAR, "depreciates" and this intervenes in the economy of that country causing inflation since the laws force the use of the local currency in the payment of taxes, payment of salaries, transportation and others, generating a demand for a low quality currency of which large amounts are required to cover the most basic needs that are equivalent to only one unit of account of any other currency, in this case the dollar.

Systematic dollarization.

Unofficial dollarization results in the instability of the local currency as we have seen, causing an inflationary spiral especially when there are changes in the interest rate or profitability of any of the currencies (local and foreign) that produce movements between them which have an impact on the deposits held, as a form of speculation with the exchange rate. This fluctuation makes the work of a Central Bank difficult, however, when a bank such as the one mentioned above allows deposits in foreign currency, it makes it easier for the depositor to make the transactions that forced him to take the money out of his country to exchange it into foreign currency, which could mean certain stability in the banking system, which could shed light on the reason why in Venezuela in recent times the exchange in foreign currency of the accumulated in Bolivars was allowed.

This topic is itchy and it spreads, and as I do not want you to fry your brains together with me, for now I will leave this topic until here, but not before inviting you to continue by my side with these "economic interpretations" in this and future installments.

Tahnk you dear friends for getting here. If you liked the content, support me with your vote and give your opinion on the topic that I have shown. Remember to answer the questions. Until next time.
By @hojaraskita

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