Ayoub Al-Farisi, a member of the Central Bank of Libya\u2019s Monetary Policy Committee, has published an article titled \u201cAn Economy Without Protection or Sovereignty: From Ecuador to Zimbabwe, What Have Dollarization Experiments Taught Us About the Graveyard of Exhausted Economies?\u201d<\/p>\n\n\n\n
Dollarization is defined as the loss of confidence in the national currency and the replacement of that currency with a foreign currency, typically the US dollar, as a unit of account, a store of value, and a medium of exchange.<\/p>\n\n\n\n
However, when a country resorts to dollarization by abolishing its national currency and permanently adopting a foreign currency as a substitute, the measure ceases to be merely a temporary financial arrangement. Instead, it becomes an existential threat and a source of widespread economic depletion.<\/p>\n\n\n\n
In recent years, as countries have sought greater independence from the dollar and sought to reduce their vulnerability to US pressure, numerous international initiatives have emerged to explore alternatives. These include discussions between Brazil and Argentina about a common currency, the exploration by the UAE and India of using the rupee in non-oil trade, and efforts by Russia and Iran to launch a gold-backed digital currency.<\/p>\n\n\n\n
1. Surrendering monetary sovereignty<\/strong><\/p>\n\n\n\n The central bank is stripped of its monetary authority and loses its ability to regulate liquidity or set interest rates. More importantly, it loses its role as the \u201clender of last resort,\u201d which enables it to rescue banks and depositors during crises. As a result, the country’s monetary fortunes become subject to decisions made by the US Federal Reserve.<\/p>\n\n\n\n 2. Economic suicide for rentier states<\/strong><\/p>\n\n\n\n In countries dependent on oil, such as Libya, a drop in oil prices or a halt in exports constitutes a fatal shock. Without a domestic currency whose exchange rate can be adjusted, the government is forced to impose severe austerity measures affecting salaries, subsidies, and public spending. This pushes the economy toward a sharp contraction and complete paralysis.<\/p>\n\n\n\n 3. Depriving the treasury of seigniorage revenue<\/strong><\/p>\n\n\n\n Countries earn net revenue from the difference between the cost of producing banknotes and their purchasing power. Abandoning the national currency means transferring these profits to the US Treasury without compensation, while drawing heavily on foreign reserves to purchase physical US dollars from abroad.<\/p>\n\n\n\n 4. Undermining domestic production and competitiveness<\/strong><\/p>\n\n\n\n Using a hard currency in a weak economy increases the cost of production and domestically produced goods relative to those of neighboring countries. This undermines opportunities to develop productive sectors, such as agriculture and industry, and leaves the country permanently dependent on imports, with little prospect of future economic revival.<\/p>\n\n\n\n 5. The risk of liquidity shortages and budget deficits<\/strong><\/p>\n\n\n\n Any imbalance in the trade balance or decline in dollar inflows directly leads to liquidity drying up in banks and markets. This leaves the state facing a structural deficit that may prevent it from paying even public-sector salaries.<\/p>\n\n\n\n 6. Deepening social inequality and poverty<\/strong><\/p>\n\n\n\n Dollarization divides society into two groups: a protected segment whose incomes are linked to hard currencies, and a much larger segment dependent on domestic incomes that bears the burden of inflation and eroding savings. This dangerously widens the social divide.<\/p>\n\n\n\n Ecuador (2000):<\/strong> Dollarization curbed inflation, but the country fell into a trap of sovereign debt and severe austerity as soon as oil prices declined. Unable to finance its budget deficit through monetary financing, the government expanded external borrowing at high interest rates, eventually leading to a sovereign debt crisis in subsequent years.<\/p>\n\n\n\n Zimbabwe (2009):<\/strong> Dollarization helped the country escape hyperinflation but triggered a catastrophic liquidity crisis, with money disappearing from banks. A trade deficit and the outflow of dollars drained cash from markets and banks. This was followed by a trap of monetary substitutes: the central bank attempted to circumvent the problem by issuing domestic cash instruments that it claimed were equivalent to the US dollar. This triggered a widespread crisis of confidence and further economic deterioration. The country was subsequently forced to return to its national currency amid widespread disruption to people’s livelihoods.<\/p>\n\n\n\n El Salvador (2001):<\/strong> The country lost monetary flexibility and key drivers of growth, leaving it unable to respond effectively to economic downturns and crises. During the 2008 global financial crisis, El Salvador could not use monetary policy tools to stimulate its economy, making the recession deeper and more prolonged.<\/p>\n\n\n\n Panama (1904):<\/strong> This is the sole exceptional case because its economy and financial system were designed around the dollar from the outset. Historically, the country’s economic model has been built on logistics services and the steady inflow of dollar revenues generated by the Panama Canal, rather than dependence on a volatile resource-based income stream.<\/p>\n\n\n\n The spread of dollarization is not a solution; it is an official surrender to crises and an emptying of the national economy of the foundations of its independence. Rather than handing the keys to financial sovereignty over to external parties, the real solution lies in addressing structural imbalances, unifying financial institutions, and managing resources with sound governance and transparency to protect both financial stability and citizens.<\/p>\n\n\n\n Why pursue catastrophic scenarios as though a solution has become impossible, when, by God’s will and power, it may be closer than ever before?<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" Ayoub Al-Farisi, a member of the Central Bank of Libya\u2019s Monetary Policy Committee, has published an article titled \u201cAn Economy Without Protection or Sovereignty: From Ecuador to Zimbabwe, What Have Dollarization Experiments Taught Us About the Graveyard of Exhausted Economies?\u201d Why Is Dollarization Economic Suicide and a Surrender of Sovereignty? Dollarization is defined as the […]<\/p>\n","protected":false},"author":13,"featured_media":258586,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"iawp_total_views":0,"_asgm_disable_schema":false,"_asgm_disable_faq":false,"_asgm_disable_howto":false,"_asgm_disable_llms":false,"_asgm_llms_description":"","footnotes":""},"categories":[2],"tags":[613],"class_list":["post-258585","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-libya"],"acf":[],"yoast_head":"\nLessons from International Experiences<\/h2>\n\n\n\n
Conclusion<\/h2>\n\n\n\n