Dollarization of the national economy: the analysis of benefits and costs

This bachelor thesis focuses on analysing the benefits and costs associated with currency substitution in a national economy. First, the reliability of the fact that under certain conditions a foreign currency can act as a substitute has been proven using the example of the USD. Then the forms of currency substitution were discussed. The definition of a "substitute" currency, in which there is a dependent monetary policy, and the definition of a "common" currency, in which countries combine the management of their monetary policies. Subsequently, a classification of the forms of dollarization with a 'substitute' currency, the reasons for their occurrence, the paths and side effects in their implementation and the ultimate positive and negative effects in terms of benefits and costs was made. At the same time, three dollarization stages were identified and analyzed. Then, the different reasons for the introduction of the "common" currency, the specific assumptions applicable to the participating economy and the similar, but also different, economic and monetary effects of the "common" currency from the "replacement" one were brought.