ABSTRACT
This chapter assesses the impact of dollarization by examining the realization of some of the optimal currency area (OCA) conditions and by addressing the lender of last resort and seigniorage issues. It analyzes the benefits from dollarization resulting from reduced transaction costs, increased trade and improved credibility. The chapter develops a framework for measuring net benefits of dollarization and attempts to foresee spread of dollarization in the countries of Latin America and Central and Eastern Europe, so as to provide a tentative appraisal of how international monetary system is likely to look in the future. What are the prospects for dollarization/euroization in the twenty-first century? The purpose of this chapter to take an objective look at this question, with particular emphasis on the factors most likely to influence the spread of the dollar and the euro. It also analyzes some of the costs and the benefits of dollarization. The OCA criteria were applied in order to investigate some of the consequences of dollarization.
