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European Economic Integration and South-East Europe

European Economic Integration and South-East Europe

Challenges and Prospects

Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald

With both transition dynamics and the EU integration process having shifted to the south-east of Europe, a region fairly marginalized in the literature, this book fills a gap by taking stock of where South-East Europe’s economies and institutions stood in 2004. The authors evaluate the potential for investment and growth within the South-East European region, including the role of trade and FDI, and discuss the challenges associated with unemployment, poverty and ‘brain drain’. The book also provides insights into the particular monetary and exchange rate policies applied, including cases of ‘euroization’, and finally makes an assessment, against this background, of the European perspective of the countries of South-East Europe.

Chapter 7: Lessons from sustained cases official dollarization/euroization

Adalbert Winkler

Subjects: economics and finance, regional economics, urban and regional studies, regional economics


7. Lessons from sustained cases of official dollarization/euroization* Adalbert Winkler 1. INTRODUCTION The official and unilateral adoption of a foreign currency, commonly known as dollarization or euroization,1 has its place in the world economy’s history, but was out of fashion for a long time – until Kosovo and Montenegro adopted the euro, and Ecuador, El Salvador and East Timor the US dollar as their currency. More important, international financial institutions and academic economists re-considered dollarization/euroization as a possible policy option when the crisis of many emerging market economies during the second half of the 1990s underlined the difficulties of managing exchange rates in a world of open capital accounts (Calvo, 1999 and 2001).2 However, the costs and benefits of unilaterally adopting another country’s currency have mainly been explored on theoretical grounds (Berg and Borensztein, 2000). Empirical analysis has been largely confined to the case of Panama (Edwards, 2001; Goldfajn and Olivares, 2002). This chapter sheds light on the experience of countries and territories that have officially and unilaterally used a foreign currency for a long time.3 In particular, it aims at answering the question concerning whether any lessons can be drawn from their experience for countries considering to unilaterally adopt another country’s currency. The chapter is structured as follows. Section 2 discusses the pros and cons of such a move,4 with a special focus on South-East European countries. Based on the criteria stressed by the bipolar view of sustainable exchange rate regimes...

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