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Dollarization occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency.
Dollarization can occur
- unofficially, without formal legal approval
- semiofficially (or officially bimonetary systems), where foreign currency is legal tender, but plays a secondary role to domestic currency
- officially, when a country ceases to issue the domestic currency and uses only foreign currency.
Dollarization can be understood in the broad sense of using any foreign currency, or follow the expression in really using the US dollar, as the national currency.
Until 1999, official dollarization received practically no attention because it was considered politically impossible. Since then it gained prominence after several countries have considered and implemented it as official policy.
The most important officially dollarized economies as of June 2002 were Ecuador (since 2000) and El Salvador (since 2001), as well as Panama (since 1904) and Puerto Rico (since 1899).
See also: American currency union
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