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Don961 » April 16th, 2024
Attempts to reduce dollarization
Economical 2024/04/17 Muhammad Sharif Abu Maysam
We often witness a state of monetary instability in the economies of developing countries that suffer from structural imbalances, or countries that are going through stages of adaptation as they move from the state economic system to the market economy in light of economic globalization, which contributes to the emergence of informal currency exchange markets. Foreign exchange, and the US dollar is usually the most traded in those markets as a suitable haven for price value from exchange rate fluctuations.
Because of the dominance of the dollar in all global commodity and service market exchanges, demand for it increases with the aim of financing foreign trade in countries that suffer from the inability to meet the needs of the local market for basic goods. Monetary and financial disruptions usually contribute to the adoption of the dollar alongside the local currency, and then it replaces it.
Little by little, it will take up more space in exchanges and trades unless the matter is remedied and the imbalances are addressed.
Otherwise, the country’s currency will lose its usefulness as a means of exchange, so it becomes dollarization that contributes to perpetuating inflation, economic instability, and the difficulty of addressing imbalances as a phenomenon supported by the data of globalization.
Here, the relevant authorities, while they are in the process of searching for solutions that will restore life to the local currency and maintain its protection, may be concerned with searching for procedural tools to curb dollarization as a phenomenon that threatens economic sovereignty
Because it appears to be a natural result of the circumstances and data of the state of transformation in the form of the economic system, as it usually The adaptation phase occurs when moving from a state economy to a market economy, but here we are looking for solutions according to the available ideas.
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In economic tradition, the demand for the local currency increases if it is adopted in trade exchanges with other countries, and thus the level of demand for foreign currencies in the local market decreases.
To finance foreign trade, this matter seems difficult at first glance, but according to what was announced by some BRICS countries, it seems possible, and the rate of demand for the local currency also increases if the contribution of the local product increases in satisfying the market’s need for goods and in a way that ensures a decrease in the rate of demand for the dollar as a result of the decline.
The rate of flow of hard currency abroad, and it also occurs in cases of relying on the local currency to deliver remittances coming from abroad, and it may occur when the demand for locally produced goods for export purposes increases, especially when the cost of the unit produced locally decreases compared to those produced in other countries
As increasing rates contribute Export increases financial transactions locally through the inflow of foreign currencies, which are converted through banking channels into the equivalent of the local currency upon exchange, which contributes to supporting the attractiveness of the local currency and the stability of its value, thus increasing the demand for it. link
Source: Dinar Recaps
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