Tuesday, February 21, 2006


This Author has promised himself for a Week that he would not write a discussion on other Countries adopting the American Dollar, in place of their own native Currency. The Subject, though, simply proved too tempting a topic. I will therefore begin to make a fool of myself.

Currency adoptions have consequences for both the adopter and adoptee. They are both Political and Economic in nature. The adoption stabilizes the economy of the nation who uses a more stable economy with a loss of national prestige. Creditors are more leniant in renogiation of national debt, along with private native foreign debt. There is a sudden and abrupt curb upon native inflation, as the unstabilized Currency is taken out of play. There is a sudden increase in national Credit rating, as the greater stability is observed with a suddenly-expanded number of potential Lenders; the later more willing to extend Credit in terms of Currency evaluations which they commonly deal. All of the Above can be a definite economic gain to the native economy.

The Currency-holder nation may not be as concurrently blessed by the venture. They suddenly find a degradation of their own Currency, with an increased Debt load denominated in their own Currency. Their Credit rating starts to slide, as the greater Debt load reverberates throughout the World economy. The stability of their Currency still depends upon the viability of their own economy, but suffers from a vastly-expanded Debt load. Interest rates endure upward pressures in the Short-Run, and deflationary pressures in the Long-Run; most notable within the realm of the Currency-holder's own economy. This comes from the higher demonimated Debt ratio combined with expanded interest in stabilization of the Currency. The result is the Currency-holder pays too much for Operating Credit in the Short-Run, and insufficient interest rates for Capital formation in the Long-Run. Operating Productions Costs become more expensive, while Capital formation Returns wind up smaller than expected. It becomes fundamentally an equation where Operating Expenses are inflated, while Long-Term Profits fall. A bad Scenario for any economy. lgl

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