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Introducing the Euro as Legal Tender—Benefits and Costs of Eurorization for Cape Verde
Author:
Patrick A. Imam
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Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 146
Language:
English
Publication Date:
01 Jul 2009
DOI:
https://doi.org/10.5089/9781451872934.001
ISBN:
9781451872934
ISSN:
1018-5941
Pages:
34
Keywords:
WP; monetary policy; fiscal policy; risk premium; Cape Verde government; dollarizing country; foreign currency; legal tender
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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In recent years, recommendations for countries to unilaterally dollarize/eurorize have become common, particularly when the countries lack economic credibility. After exploring the characteristics of dollarizing/eurorizing economies, we look at the merits and costs of unilateral eurorization for Cape Verde, a highly tourism based economy that has become increasingly integrated into the euro-zone area and that has a strong macroeconomic track record. We illustrate that neither the benefits nor the costs of unilateral eurorization are large and conclude that there is no compelling case to change the current exchange rate arrangement at this point in time. Econometrically, we assess the characteristics of dollarized economies and demonstrate that few of them apply to Cape Verde, further confirming that Cape Verde does not fit the pattern of most dollarizing countries.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2009: Issue 146