Dollarization in East Africa: Causes, Consequences, and Future Forecasts

Abstract

The dollarization phenomenon has been widespread among the East African countries for many decades. This trend results in several consequences that might be either beneficial or harmful to these countries and their likes. The objective of this research was to empirically examine the causes, consequences and the future scenarios of dollarization in one of the leading regional countries such as Somalia. The research used a survey of over 100 respondents and applied descriptive statistics and t-tests to achieve the above objectives. The findings show that the main causes of Dollarization in Somalia are the implementation of the Hawallah (money transfer) system, the remarkable absence of the central bank and other monitoring financial authorities, the increasing exports and imports of the Somalian economy, the loss of confidence in the local Somalian Shilling, and the relative ease at which the Somalian Shilling can be printed and manipulated by selected market players. These causes are found to be mainly triggered by the revenue from exports, the policies and regulations implemented by the Somali government, the Somali Diaspora, and the international aid organizations. This has resulted in the foreign traders buying Somali goods at a relatively lower price and taking advantage of the depreciated Somali Shilling against most international currencies.

The Prospect of Dollarization in Nigeria: An Empirical Review

“…Unofficial dollarization has existed in many countries for years but has attracted little or no political attention because it is somewhat beyond the control of governments, though it constitutes a major issue of interest to economist [23]. Particularly in developing countries, foreign currencies such as the dollar is widely used and accepted in private transactions though it is not classified as legal tender by the country's government [24]. This makes its use unofficial.…”

Empirical Study on Dollarization in Vietnam

“…For the last two decades, with the strong global economic development and the increase in foreign capital investments among countries have led to the rising in replacing the domestic currency by other foreign currencies as a means of payment, unit of account and store of value (Musse and Echchabi, 2017). Some foreign currencies are widely accepted by other different countries, but U.S dollar is the most popular one, which accounts for the highest proportion (about 70%) of world trade turnover (Le T.M.H, 2009).…”

The Effects of Dollarization on Local Currency in Somalia

“…This currency printed were used domestically by the private business owners and some sometimes the local currency were imported from abroad without the authorization of the central authority of Somalia (Ahmed Nuh YUSUF et al, 2019). Furthermore, the major causes of dollarization in Somalia entail: the collapsed and absence of the central bank to print local currency an supervise the financial institutions and the use of currency in the economy; the implementation of money transfer called Hawallah; the increasing rate of imports and exports in Somalia; the lost of trust and confidence in Somali shillings due to its rapid depreciation in value and lastly the easy access and printing if Somali Shillings by the few selected market players in the economy (Osman Sayid Hassan Musse and Abdelghani Echchabi, 2017).…”