Introducing the Euro as Legal Tender—Benefits and Costs of Eurorization for Cape Verde

July 1, 2009

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Patrick A. Imam Introducing the Euro as Legal Tender—Benefits and Costs of Eurorization for Cape Verde, (USA: International Monetary Fund, 2009) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In recent years, recommendations for countries to unilaterally dollarize/eurorize have become common, particularly when the countries lack economic credibility. After exploring the characteristics of dollarizing/eurorizing economies, we look at the merits and costs of unilateral eurorization for Cape Verde, a highly tourism based economy that has become increasingly integrated into the euro-zone area and that has a strong macroeconomic track record. We illustrate that neither the benefits nor the costs of unilateral eurorization are large and conclude that there is no compelling case to change the current exchange rate arrangement at this point in time. Econometrically, we assess the characteristics of dollarized economies and demonstrate that few of them apply to Cape Verde, further confirming that Cape Verde does not fit the pattern of most dollarizing countries.

Subject: Conventional peg, Currencies, Dollarization, Exchange rate arrangements, Exchange rates

Keywords: Cape Verde government, Dollarizing country, Fiscal policy, Foreign currency, Legal tender, Monetary policy, Risk premium, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/146
Stock No:

WPIEA2009146
ISBN:

9781451872934
ISSN:

1018-5941

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