When the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency then Dollarization takes place. The term is not only applied to usage of the United States dollar, but generally it is applied to the use of any foreign currency as the national currency.
Conditions for the Occurrence of Dollarization
Dollarization can occur
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Unofficially, when the foreign currency is given preference over domestic currency by the private agents. for instance deposits are held by them in the foreign currency because of a bad track record of the local currency.
