When the nation of Varnia faced rampant economic inflation, it became evident that the inflation would reduce Varnia's domestic currency's buying power. As a result, the Varnian government decided to officially use the currency of Rhotabha as legal tender for conducting transactions. In this scenario, the Varnian government's action of abandoning its own domestic currency and using Rhotabha's currency instead is called _____.
A) dollarization
B) equitization
C) amortization
D) delinquency

Question

Quizplus · Accepted Answer

Dollarization is the term used when a country adopts another country's currency as its own legal tender, effectively replacing its domestic currency. This can be done to stabilize the economy, especially in cases of hyperinflation or when the domestic currency is significantly devalued. The term remains "dollarization" regardless of whether the adopted currency is the U.S. dollar or another foreign currency, such as Rhotabha's currency in this scenario.

When the Nation of Varnia Faced Rampant Economic Inflation, It