Growing up in the United States we’ve seen firsthand the power of the almighty dollar. Still, we were shocked seeing dollarization in Ecuador, Cambodia, and other countries where their own denominations had been replaced with American money. Some places we’ve traveled local shops flat out refused to take their own official currency! So what is dollarization exactly? Our experiences have led us to explore both the positive and negative effects of this economic strategy, and how dollarization affects your travel.
Essential Backpacking Tips
- 10 Cheapest Countries to Travel to on Your Next Vacation
- Island Hopping Croatia’s Southern Islands
- Understanding the Albanian Bus System: How Difficult is it?
- Hiking in Patagonia: Guide to the Top Day Treks from El Chalten
- 12 Frequently Asked Questions about the Greek Islands Ferry System
What is Dollarization?
There are many reasons why a nation would turn to the US dollar, but the main objective is always economic stability. For a struggling country sometimes switching to a foreign currency is an absolute last resort. Other times, it’s simply changing to a form of money with way more value than your own.
In the case of a financial collapse like Ecuador saw in 1998, the dollar brought a much needed change to a struggling economy. However, it’s very debatable how much dollarization in Ecuador and other countries helps long term. As you’ll see, the effects of dollarization do not come without many complications.
Positive Effects of Dollarization
By switching to a foreign currency such as the American dollar, a country can tie its financial future in with a more powerful nation. Unfortunately, serious inflation problems often reek havoc among underdeveloped countries.
Working with a strong foreign currency can promote a stable economy. Also, the new stability it provides almost guarantees interest from overseas investors. Dollarization countries often experience boatloads of tourism from the connecting country for this reason.
Case in point, before Zimbabwe switched to the dollar it was seen as one of the most expensive countries in the world to visit. The positive effect of dollarization was seen quickly after as the African nation experienced an influx in tourism. This was due mainly to the use of the US dollar, and the more favorable exchange rate it now provides to travelers.
A growing tourism market has led to many building projects and hotels. This in turn has created more jobs, and a subsequent jolt to Zimbabwe’s economy. Sometimes it can be just what a struggling country needs to survive, or the ideal transition into a new stage economically.
Negative Effects of Dollarization
As you can see, there are some benefits to dollarization. Yet, it’s not all sunshine and rainbows. Full dollarization is essentially giving up control of your economy, therefore putting your nations fate almost entirely in the hands of a foreign government.
Not only is this a dangerous concept for an underdeveloped or transitioning country, but it undoubtedly takes a psychological toll on its citizens. Imagine your feelings as a native of a country like Cambodia, having to abandon your local Riel for American dollars.
Not because you want to, but purely out of necessity. There has to be a sense of national pride that gets lost in that process. This especially applies to a place still rebuilding from a civil war or something already traumatic.
In addition, the positives tourism can bring to an economy can be equally as disastrous in the wrong circumstances. For all the good that the dollar has done for Zimbabwe, there is no looking past the poaching issues raised by the Cecil the Lion fiasco. Also, just recently in 2019 Zimbabwe has gone back to their own currency.
This caused hyperinflation, panic, and the country is struggling to maintain with no foreign investment. Obviously you’re better off not being a dollarization country in the long run if possible.
Traveling with the US Dollar
We can argue the benefits and drawbacks of dollarization in Ecuador and other places all day long. Nonetheless, there is one thing that’s not debatable. Traveling with the American dollar is the way to go!
Even if the dollar is not the official currency of the country you’re traveling in, more often than not you can still use or exchange it without issue. Many places in Asia and South America actually prefer dollars for border crossings and other important fees.
On top of that, you’re almost always guaranteed a better rate of exchange with the dollar. Its world recognition as a valued currency is sure to get you out of a jam if need be.
Despite its actual monetary value being slightly lower than the Euro, the US dollar still holds plenty of weight around the world. So whatever your opinion on the effects of dollarization it’s always smart to keep some extra American money while traveling!
Dollarization Countries List
Some dollarization countries have done a full currency substitution while others use it alongside their own money. For instance, dollarization in Ecuador is much different than how you’ll see it used in Turks and Caicos. It’s also important to note that many nations such as Argentina use USD for major transactions, but not in everyday life.
- Ecuador
- Cambodia
- British Virgin Islands
- Zimbabwe
- Turks and Caicos
- Panama
- El Salvador
- Marshall Islands
So what is dollarization? It’s a hard concept to understand, and it’s even more difficult to figure out if it actually works or not! Let us know your thoughts in the comments below.
Safe Travels,
Brigitte & Jake
Where in the world are we? Follow our daily adventures on Instagram @nothingfamiliar!
___________________________
Travel Planning
Information: Explore dozens of amazing destinations around the world, travel planning tips, itineraries, street food guides, and so much more.
Flights: We always find our cheap flight deals using Skyscanner. That’s how we flew from Norway to Poland for under $20 USD, and Thailand to Vietnam for less than $50!
Accommodation: Compare multiple sites to get to the best deal such as Booking.com and Agoda! Also, Hostelworld can be your go-to source if you’re traveling on a budget.
Rental Car: We use Discover Cars for renting vehicles. A quick travel tip is to ask for a discounted weekly rate rather than booking 2-3 days.
Tours: Check out Get Your Guide for thousands of activities around the world. From food tours to skip the line entry passes!
Travel Insurance: Never travel abroad without being covered. We’ve been using SafetyWing for the last few years on the road and they are there when we need them.
Packing Lists: Find all the inspiration you need with our Amazon packing lists. Including our electronics and camera gear, must-have medical items, and long flight essentials!
