Which of the following statements about dollarization is accurate?
A)A country that chooses to dollarize will enhance its control over its monetary policy.
B)Dollarization decreases exchange-rate risks by removing the risks of speculative attacks on its currency.
C)A country that dollarizes gains interest income on what had been the country's holdings of international reserve assets.
D)Dollarization enables a country to adopt a measure countering adverse foreign shocks without disrupting the country's economy.

Question

Quizplus · Accepted Answer

Dollarization removes the risks of speculative attacks on its currency and the resulting exchange-rate risks. However, dollarization also means the country loses control over its monetary policy and cannot print money to finance government spending or respond to domestic economic conditions. The country also cannot earn interest income on the international reserves it previously held. While dollarization can help counter adverse foreign shocks, it can also disrupt the country's economy in the long run.

Which of the Following Statements About Dollarization Is Accurate