European Economic Integration and South-East Europe
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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.
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Chapter 6: De jure dollarization and euroization

Eduardo Levy Yeyati


Eduardo Levy Yeyati A discussion of de jure dollarization and euroization presumes the presence of two different phenomena. Typically, de jure dollarization refers to the official adoption of a foreign currency – any foreign currency – in lieu of the national currency.1 It follows that the standard definition of dollarization also comprises the unilateral adoption of the euro as exclusive – or parallel – legal tender. What do we talk about, then, when we talk about euroization? Taking advantage of the absence of a standard definition of the term, I propose to understand euroization, more specifically, as monetary integration with the euro area. As I will argue below, this entails important differences with dollarization – as well as with monetary unions in general. But in order to frame the discussion, it is useful to revisit first the traditional dollarization debate. This debate was reheated by the stream of emerging market crises in the late 1990s. The crises revealed the vulnerability of conventional pegs – which had regained popularity in the 1980s and early 1990s as a deflationary device – to self-fulfilling runs and speculative attacks, narrowing down the exchange rate regime debate to a credibility issue: unless a credible commitment device could not be engineered, governments would better avoid any commitment to a fixed exchange rate at all. For a while, the so-called hard pegs were proposed as a partial solution to this dilemma. In a nutshell, this ‘bipolar view’ argued that the only alternative to floating was a...

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