1 / 21

Dollarization In El Salvador

Dollarization In El Salvador. Nelson Sandeep Kumar. Introduction. One benefit of a global economy is the ability to help other countries Reasons may be for personal benefit or goodwill One way is through Dollarization. Introduction.

zofia
Télécharger la présentation

Dollarization In El Salvador

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Dollarization In El Salvador Nelson Sandeep Kumar

  2. Introduction • One benefit of a global economy is the ability to help other countries • Reasons may be for personal benefit or goodwill • One way is through Dollarization

  3. Introduction • Some countries will use foreign currency in an attempt to help their economy • Some countries who have done this include Ecuador, Panama, and El Salvador • We will be covering the Dollarization of El Salvador

  4. Economic Background • Population of 7,066,403 • Smallest country in the American Continent • El Salvador is the third largest economy in that region, behind Costa Rica and Panama • GDP per capita is $5,800 • Still considered a developing country

  5. Economic Background • National currency was the Colon • had a permanent exchange rate of 8.75 to the dollar • Is among the 10 poorest countries in Latin America • Approximately 2.4 million people live below poverty line (30.7%) • GDP is lower then neighbors • 6% of population is unemployed

  6. Economic Background • The also suffer heavy underemployment • Natural disaster like earthquakes and hurricane have hurt the economy • Also face inequality in distribution of income • In 1999, The richest 20% received 45% of the income and the poorest 20% only got 5.6%

  7. Economic Background • Have experienced mixed results from changes in fiscal policies • GDP has been growing an average of 2.8% annually since 1996 • Inflation has averaged 3% annually since 1997 • depends greatly on exports and remittances • In 2005, 16% lived in extreme poverty, without remittances this figure would be 37%

  8. Dollarization Background • Dollarization happens when foreign currency is used in conjunction with or instead of the domestic currency • Can occur in 3 different instances • Unofficially • Semiofficially • Officially • The term refers to any currency, not just U.S. Dollars

  9. Dollarization Background Benefits Include: • Increased economic growth rate • Elimination of exchange rate risk • Increase in foreign investments • Lower interest rates

  10. Dollarization Background More Benefits • Greater inflow of foreign capital into the economy • Promotes fiscal discipline, and efficient financial system, and the adoption of financial reforms • Stabilized inflation

  11. Dollarization Background Drawbacks Include • Loss of control of interest rates and money supply • Restrictions on last resort lending • elimination of the government’s ability to generate seigniorage (revenue from issuing domestic money) • Being tied to another country’s economy even in bad times

  12. Dollarization Agreement President Francisco Florez (ARENA) FMLN- Previously the Guerrilla

  13. Currency Effects on The poor Prices for consumer goods and services were rounded up $1 dollar=8.75 colones 1 U.S. Penny=0.11 salvadorean cents Conversion problems and no change back EX. before dollarization bus fare 2.00 colones 2.00 colones x 1.00 dollar/8.75 colones=0.228 dollar

  14. Legal Minimum Wages $0.80 cents an hour $6.41 Daily $192 Monthly That’s if you have a job and earn the minimum wages

  15. Local Supermarket Products 4 pounds bag of beans=$4.39 Colgate 360 toothbrush=$1.95 each 2 x 160 grams of Tuna cans= $3.57 Source: superselectos.com

  16. INFlATION: ÍNDICE DE PRECIOS AL CONSUMIDOR 1/Base Diciembre de 1992 = 100Variación Anual

  17. Remittances From 1999 to 2008

  18. Remittances from The U.S.

  19. Inflation for the Consumer from 1998 to 2007

  20. Source: EL salvador’s federal reserve bank

  21. Conclusion Dollarization Good Bad In the long run

More Related