The US dollar accounts for 88% of world transactions and comprises a sizable part of the reserves of central banks and major companies, which have increased demand for US bonds in financial markets.
Dollarization of the economy happens when a country recognizes the dollar as a legal currency or medium of exchange instead of or besides its local currency. It often occurs in developing countries mainly due to the national currency’s weakness and their volatile economy.
Abdolnasser Hemmati, a former governor of the Central Bank of Iran, prefaced an editorial for the Persian economic daily Donya-e-Eqtesad with this note. A translation of the text follows:
People are likely to choose dollar for daily transactions when their developing countries experience runaway inflation, because their local currency is continuously losing its purchasing power.
May 31, 2023 19:01
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De-Dollarization Dissected
For Iran, de-dollarization of foreign trade is a necessity owing to the US policies and sanctions. However, the implementation of this policy is contingent upon strengthening the value of the national currency
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