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Countries that do not have a central bank

Countries that do not have a central bank

Among the reasons that made Javier Miley, the elected president of Argentina, famous, are his radical and often bizarre ideas on economic issues: among other things, he proposes the abolition of the Argentine currency, the Argentine currency. WeightAdopting the US dollar as its currency. He also suggests – with a certain tendency towards exaggeration – the “blowing up” of the Argentine Central Bank, which would not be useful with the adoption of the dollar which, according to Mele, is the cause of the eternal economic crisis in which the country finds itself.

Net of Miley’s hyperbolic statements, there are actually some countries that do not have their own currency thus They have given up That their institutions have a central bank. However, almost all of them are very small countries with underdeveloped economies, and therefore it is difficult to compare them with Argentina: if Miley actually implements his idea of ​​dollarizing the economy and closing the central bank, the consequences may be unpredictable.

Among the countries that do not have their own central bank, there are mainly small island states. For example, there are some countries in Oceania: Federated States of Micronesia; KiribatiIt is a republic that includes 33 atolls and various islands extending along the equator. Tuvalu; the Marshall Islands; NauruAn island with an area of ​​21 square kilometers; And thePalau Archipelago. These countries adopted the US or Australian dollar as their currency: their economies depend mainly on tourism and the import of goods from abroad, and with this decision they ensured that they had stable currencies to trade without the risk of large fluctuations in exchange rates. .

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It is among the island nations that do not have central banks there as wellIsle of Manan island in the Irish Sea that is not part of the United Kingdom but is still dependent on the British Crown: it has its own currency issued by the local treasury, Pound manwhich is linked to the pound sterling and therefore depends on the policies of the Bank of England.

In Europe, there are three countries that do not have their own currency and central bank: the Principality of Monaco, Liechtenstein, and Andorra. All three countries adopt the euro as their official currency, and this has never created special problems: both because of their physical proximity and economic connection with European countries, where the presence of a common currency is very effective, but also because of the fact that, due to their large size, unification with the rest of the European economy can remain. Under the monetary policies of the European Central Bank without distortions. Instead, they use the euro despite having a central bank, albeit with limited functions, such as San Marino, Vatican City, Kosovo, and Montenegro.

When you abandon your currency and your central bank, the risks of distorting the economy are very high. A country that does not have its own central bank loses in the first place the possibility of having its own monetary policy: it cannot print money, and it cannot determine the level of reference interest rates or the exchange rate in relation to other currencies. Concretely, it does not have the possibility of using monetary policy to stabilize the economy when needed (for example when interest rates are increased to fight inflation).

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When you adopt another currency, you essentially decide to submit to the monetary policy of the central bank that issues it: if you adopt the euro you are subject to the decisions of the European Central Bank, and if you adopt the dollar you are subject to the decisions of the Federal Reserve and the United States. central bank.

This may be distorted if there are large differences between countries that use a common currency. Quite simply, currencies are a mirror of the economies they represent: strong economies have strong, stable currencies, such as the dollar in the United States or the euro in the eurozone; Weak and unstable economies have weak and unstable currencies, which can quickly lose value. Imposing a strong currency, such as the US dollar, on a weak economy on the verge of default, such as Argentina’s, would create a series of distortions that could jeopardize the economic system.

However, there are countries in South America that have officially adopted the dollar as their currency: Panama, which also abandoned its central bank, and Ecuador and El Salvador, which retained their central bank to carry out other tasks, such as banking supervision. Again, the only possible comparison is through geographical proximity: these three countries have much smaller and less problematic economies than Argentina’s.

– Read also: Can Argentina really switch to the dollar?