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Playing Monopoly with the DevilDollarization and Domestic Currencies in Developing Countries$
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Manuel Hinds

Print publication date: 2006

Print ISBN-13: 9780300113303

Published to Yale Scholarship Online: October 2013

DOI: 10.12987/yale/9780300113303.001.0001

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The Unfulfilled Promises in the Financial System

The Unfulfilled Promises in the Financial System

(p.16) Chapter 2 The Unfulfilled Promises in the Financial System
Playing Monopoly with the Devil

Manuel Hinds

Yale University Press

This chapter reviews the ability of floating local currencies to provide plentiful financial resources at low financial costs, and discusses how international currencies can play the role of standards of value for several reasons. The main one is that they cover large and diversified areas, which can meet all the economic needs of their inhabitants with world-class quality and efficiency. The chapter discusses how, if a local currency is devalued in a poorly diversified economy, as all the developing ones are, the cost of the many goods and services that it does not produce will increase by the magnitude of the devaluation. It analyzes the behavior of interest rates and the volumes of resources intermediated. It also analyzes how these two variables interact with each other to give shape to the financial systems of the developing countries.

Keywords:   local currencies, financial costs, international currencies, devaluation, financial systems, developing countries

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