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One Moment

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One Moment The advantages for El Salvador to dollarize stand to provide the country with long run benefits politically, economically, and socially. The problem facing the El Salvadoran leadership lies in what type of methodology should be employed to create the link between the country’s economy and the United States dollar (USD). Adoption of the USD alone will not be sufficient to move their economy to a position of strength and profitability. Supporting actions and policies will be needed to complete the currency change and register the move as a success domestically and globally. The adoption of the dollar in the El Salvadoran economy is not fully dependent on the abandonment of the colon in favor of the dollar sign. The alternative solutions to capitalizing on the benefits of a dollar relative economy rely on finding solutions that allow both currencies to coexist in the market place. The first solution is to use a floating currency with no fixed dollar exchange rate (Bloch & Nelson, 2003). The second alternative is use a floating currency with a fixed dollar exchange rate. The benefits offered by this approach include: (a) El Salvador can set exchange rates in the open market, and (b) ability to float the domestic currency with respect to the dollar. Both alternatives will provide El Salvador with the ability to influence its competitive currency position relative to neighboring countries. However, with these approaches promote short sighted gains with respect to participation in the global economy. The recommended solution for El Salvador is to adopt the dollar sign into the domestic economy. The adoption of the dollar with have a high probability of promoting foreign investment into a common dollar based economy (Towers & Borzutsky, 2004). Second, El Salvador will improve trade from United States sources. The United States stands to be the

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