Dollarization | English Lesson

The topic of this English lesson for economists is dollarization.  

Inflation rates have increased all over the world, but while some countries are dealing with inflation rates of 5 or 6 percent per year, other countries are struggling with rates of 5 or 6 percent per month, or even more. Managing those high levels is a big challenge for policymakers. One of the possible solutions that gets considered is to replace the domestic currency with the euro or more frequently, the US dollar. Dollarization.

So, here are some words you can use to engage in the conversation:

Vocabulary

• Legal Tender: Banknotes and coins recognized by law as a means to pay a debt or meet a financial obligation. So, for example, the Uruguayan Peso is the legal tender of Uruguay. The Chilean Peso is the legal tender of Chile. Legal tender.
• Currency Peg: a policy in which a national government sets a specific fixed exchange rate for its currency with a foreign currency or a basket of currencies. Currency peg.
  • By the way, in general terms, a peg is used to fasten things together. A clothes peg, for example, is what you might use to hang your clothing online to dry. A peg. And in this case, a currency peg.
• Hard dollarization: This is official dollarization.
• Soft dollarization: That is partial, unofficial dollarization. Sometimes it is referred to as a de facto dollarization, where the dollar exists as an alternative to a domestic currency.

Let’s deepen the lesson a little bit and look at a headline of an opinion piece that was published at the end of April 2022 in America’s Quarterly. See if you understand the English:

Let’s break this headline down to see what it means, and see which vocabulary might be useful for you to learn.

The first expression is ‘silver bullet’. A silver bullet is a simple, almost magical solution to a complicated problem. In Spanish, you know this expression as ‘una bala de plata’.  Bala de Plata: Silver bullet. Same thing.

And ‘woes’? A woe is something that causes you trouble — a problem. Woe is a word that you will find written more than spoken. It is not very commonly used. Still, you should understand it when you see it.

Okay. That’s all the words. Here is a quick review of all the key vocabulary

Vocabulary Review

• Legal Tender: Banknotes and coins recognized by law as a means to pay a debt or meet a financial obligation. So, for example, the Uruguayan Peso is the legal tender of Uruguay. The Chilean Peso is the legal tender of Chile. Legal tender.
• Currency Peg: a policy in which a national government sets a specific fixed exchange rate for its currency with a foreign currency or a basket of currencies. Currency peg.
  • By the way, in general terms, a peg is used to fasten things together. A clothes peg, for example, is what you might use to hang your clothing online to dry. A peg. And in this case, a currency peg.
• Hard dollarization: This is official dollarization.
• Soft dollarization: That is partial, unofficial dollarization. Sometimes it is referred to as a de facto dollarization, where the dollar exists as an alternative to a domestic currency.
• Silver bullet: a simple, almost magical solution to a complicated problem
• Woe: something that causes you trouble — a problem

Conclusion

That covers the new vocabulary. Please, if this topic interests you, you could also watch lessons on Sovereign Debt and Default and CBDC, Stablecoins, DeFi and Web3.  

Okay. That’s it for now. I will be back next week with another English lesson for economists. See you then.  

Image used courtesy of Manuel Dohmen – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=185802