Introducing the Euro as Legal Tender - Benefits and Costs of Eurorization for Cape Verde

Author/Editor: Imam, Patrick A.
Publication Date: July 01, 2009
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 09/146
Subject(s): Benefits | Cape Verde | Cross country analysis | Currency pegs | Currency substitution | Dollarization | Exchange rate regimes | Fiscal policy | Monetary systems

Author's Keyword(s): Fixed exchange rate | eurorization | dollarization | Cape Verde
Publication Date: July 01, 2009
Format: Paper
Stock No: WPIEA2009146 Pages: 34
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