engleski

Parallel Currency within a Monetary Sovereign System – is Dollarization a Problem or a Solution

Existence of a parallel currency within a sovereign monetary and economic system, in literature usually referred as dollarization, is not a new phenomenon. At first sight it could be intuitively concluded that the roots of the problem are in monetary sphere when a foreign currency substitutes national (in some or all of its functions) as a market reaction on instability. Still, the causes of (any type of) dollarization are not limited only to monetary policy. They are numerous and complex, developed through a longer period and it is almost impossible to completely alleviate them. On the other hand, the parallel monetary system is an obstacle for the real economy. This paper analyses the roots and consequences of dollarization, focusing on monetary policies of Croatia and Slovenia. Furthermore, there is a discussion on its interrelation with (both formal and real) monetary sovereignty, considering also the influence of Great Recession. Although some attention is given to the discussion of full dollarization, the focus of the paper is on the unofficial existence of a parallel currency within a monetary sovereign economy, discussed in specific detail on the cases of monetary policies in the two neighbouring countries, former members of a common state. There is an open dilemma on benefits of monetary sovereignty in terms of hard fixed regime and high level of unofficial dollarization, especially in small open economies, including the negative external influence of Global financial crisis. Paper concludes with a discussion whether a dollarization is a solution or a problem for these countries.

monetary sovereignty; dollarization; monetary policy

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