Macroeconomic Adjustment in a Highly Dollarized Economy

The term "dollarization" refers to economies where the dollar has become the semi-official, dominant currency in a country over a period of time. This paper examines the situation in Cambodia where this process has been particularly rapid and extensive. It reviews economic, financial, and structural developments in Cambodia, focusing on the 1990s period, and discusses the emergence of "dollarization". It looks at recent developments in the literature on dollarization and seeks to provide an econometric estimation of cash foreign currency circulation. It considers the costs and benefits of dollarization in Cambodia, as well as the macroeconomic policy implications.