Shared Currencies – Dollarization and Currency Unions

The Use of Parallel Currencies is Dollarization

Euro Currency Union
The Eurozone is the world's largest currency union, with the euro used by numerous European countries as their primary currency. Ryan McVay/Getty Images

National currencies contribute greatly to the political, economic, and social circumstances of countries. Traditionally, each country had its own currency. However, many countries have now decided to adopt foreign currencies as their own, or adopt a single currency. Through integration, dollarization and currency unions have made economic transactions easier and faster and even aided development.

Definition of Dollarization

The Benefits of Dollarization

Disadvantages of Dollarization

Dollarized Countries That Use the United States Dollar

In the late 20th century, Ecuador's economy declined rapidly due to natural disasters and lower global demand for petroleum. Inflation soared, the Ecuadorian sucre lost much of its value, and Ecuador could not repay foreign debt. In the midst of political turmoil, Ecuador dollarized its economy in 2000, and the economy has since slowly improved.

El Salvador dollarized its economy in 2001. Much trade occurs between the United States and El Salvador. Many Salvadorians go to the United States to work and send money home to their families.

East Timor gained independence in 2002 after a long struggle with Indonesia. East Timor adopted the United States dollar as its currency in the hope that monetary aid and investment would more easily enter this poor country.

The Pacific Ocean countries of Palau, the Marshall Islands, and the Federated States of Micronesia use the United States dollar as their currencies. These countries gained independence from the United States in the 1980s and 1990s.

Zimbabwe has experienced some of the world's worst inflation. In 2009, the Zimbabwean government abandoned the Zimbabwean dollar and declared that the United States Dollar, South African rand, British pound sterling, and Botswana's pula would be accepted as legal tender. The Zimbabwean dollar may one day be revived.

Dollarized Countries That Use Other Currencies than the United States Dollar

The South African rand is used in Namibia, Swaziland, and Lesotho, alongside their official currencies of the Namibian Dollar, lilangeni, and loti, respectively.

The Indian Rupee is used in Bhutan and Nepal, alongside the Bhutanese ngultrum and the Nepalese rupee, respectively.

Liechtenstein has used the Swiss franc as its currency since 1920.

Currency Unions

Another currency union is the East Caribbean Dollar. 625,000 residents of six countries and two British territories use the East Caribbean dollar. It was first introduced in 1965.

The CFA Franc is the common currency of fourteen African countries. In the 1940s, France created the currency to improve the economies of some of its African colonies. Today, over 100 million people use the Central and West African CFA Francs. The CFA Franc, which is guaranteed by the French treasury and has a fixed exchange rate to the euro, has helped stabilize the economies of these developing countries by promoting trade and reducing inflation. The profitable, abundant natural resources of these African countries are more easily exported. (See page two for a listing of countries using the East Caribbean Dollar, West African CFA Franc, and Central African CFA Franc.)

Successful Economic Growth

In the age of globalization, dollarization has occurred and currency unions have been created in the hope that economies will be stronger and more predictable. More countries will share currencies in the future, and this economic integration will hopefully lead to better health and education for all people.

Countries That Use the East Caribbean Dollar

Countries That Use the West African CFA Franc

Countries That Use the Central African CFA Franc

Gabon