Consider the following statements about lsquo Dollarization rsquo 1 It is the use of foreign currenc...........

Economic Affairs Money Supply and Monetary Policy

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Consider the following statements about ‘Dollarization’:

1.It is the use of foreign currency such as euro, in addition to or instead of the domestic currency as legal tender.

2.It usually occurs in weak central government or an unstable economic environment.

3.It provides greater stability in the value of a foreign currency over a country's domestic currency.

How many of the statements given above are correct?

Only One

Only Two

All Three

None

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Explanation:

It is the use of foreign currency such as euro, in addition to or instead of the domestic currency as legal tender: This statement is correct. Dollarization involves the use of a foreign currency (like the U.S. dollar or euro) alongside or instead of the domestic currency for transactions.

It usually occurs in a weak central government or an unstable economic environment: This statement is correct. Dollarization often occurs in countries with weak central governments or in situations where the domestic currency is facing significant instability.

It provides greater stability in the value of a foreign currency over a country's domestic currency: This statement is correct. Dollarization can provide stability in terms of currency value, as foreign currencies are generally perceived as more stable than certain domestic currencies facing economic challenges.