What term refers to when a poorer country ties its currency to that of a wealthier country or adopts that currency as its own?

What term refers to when a poorer country ties its currency to that of a wealthier country or adopts that currency as its own?

• A. Maquiladoras
• B. EPZs
• C. HDI
• D. Dollarization

Answer: (D)

Dollarization is when a country uses another nation's currency as its own money, or makes that currency legal tender, effectively tying its monetary system to that country. This approach can help stabilize prices and reduce exchange-rate risk, making trade and investment with the wealthier country easier, though it means giving up control over domestic monetary policy. For example, some poorer countries adopt the U.S. dollar officially, or rely on it in practice. The other terms refer to different concepts: Maquiladoras are border factories, EPZs are export processing zones, and HDI is a development index.

Dollarization is when a country uses another nation's currency as its own money, or makes that currency legal tender, effectively tying its monetary system to that country. This approach can help stabilize prices and reduce exchange-rate risk, making trade and investment with the wealthier country easier, though it means giving up control over domestic monetary policy. For example, some poorer countries adopt the U.S. dollar officially, or rely on it in practice. The other terms refer to different concepts: Maquiladoras are border factories, EPZs are export processing zones, and HDI is a development index.