Other Countries’ Money

Currency and national identity are often quite tied together. Just look at battles in European Union countries like the United Kingdom and Sweden when the issue of switching to the euro comes up. Maintaining a separate currency, even merely at a nominal level like many countries do, presents a front of independence on the world stage (or at least gets coin collectors to put money in the national coffers by purchasing the country’s rare and uncommon coins). The trend over the past half-century, however, has been for countries with mid-range and small economies not already participating in multinational currency unions (the Eurozone; the CFA and CFP francs; Eastern Caribbean Currency Union; Caribbean guilder; Southern Africa Customs Union) to either peg their currency directly to another currency(ies), or to simply adopt another country’s currency outright.

Perhaps unsurprisingly, the currency most borrowed outside of its parent area is the United States dollar. This dates back all the way to 1903 and the independence of Panama (which came in large part thanks to US support in order to ensure US control over the Panama Canal Zone). Officially, Panama has used the balboa since that time, but the balboa has always been pegged 1-to-1 with the US dollar. Panama mints coins but does not issue paper currency; save for one week in 1941, Panama has always used US banknotes for paper currency. Panama isn’t the only Latin American country using the US dollar. You may be surprised to know that both Ecuador and El Salvador use the US dollar. For most of El Salvador’s existence, it used the colón, while Ecuador used the sucre. When the sucre crashed between 1995 and 1999 (dropping from 3 000 sucre to the US dollar to over 25 000), in January 2000 the Jamil Mahuad government announced an immediate conversion to the dollar and a bank account freeze, a plan that caused so much public outrage it ultimately forced his resignation. El Salvador switched over to the US dollar a year later as a way to attract foreign investment. Most infamously, Zimbabwe’s pathetically weak dollar was finally put out of its misery in April 2009 when the country finally cried ‘uncle’ and switched to the US dollar (although, with an exchange rate having fallen to 300 000 000 000 000 to the US dollar at that point, switching to eggs or dirt probably would have been just as stable). Other countries using the US dollar include the Marshall Islands, Palau, and the Federated States of Micronesia (former US trust territories which remain in association with the US), Timor-Leste, the British Virgin Islands, the Turks and Caicos Islands, and the Caribbean Netherlands.

Zimbabwe_100000000000000

Anytime the word ‘trillion’ appears on one of your banknotes, it’s probably a good time to call it quits and go with something else. Source: Misodengaku, http://commons.wikimedia.org/wiki/File:Zimbabwe_100000000000000.png. Licensed under the Creative Commons Attribution-Share Alike 3.0 Unported licence.

While many smaller European countries not in the European Union use the euro via agreement and even mint their own euro currency, three jurisdictions (Andorra, Kosovo and Montenegro) have taken it on unilaterally. Prior to the euro, Andorra’s had no official currency of its own, using the French franc and Spanish peseta. When the euro was introduced in those two countries at the beginning of 2002, Andorra came along by default. Similarly, Kosovo and Montenegro, both still part of the Federal Republic of Yugoslavia at the time, were users of the German mark (in contrast with partner Serbia, which used the dinar, Montenegro moved away from the dinar via Western aid fearing destabilisation; use of the mark and dinar in Kosovo was split along ethnic lines). When Germany entered the Eurozone, so did Kosovo and Montenegro. As they possess no formal agreements with the European Central Bank, Andorra, Kosovo and Montenegro have no authority to mint coinage like other Eurozone countries. Kosovo’s currency remains divided along ethnic lines. Andorra entered negotiations to mint its own coinage in 2004, and after some delays in implementation due to Andorra’s secretive banking laws, an agreement was reached on 10 February of this year.

Outside of the US dollar and the euro, most informal currency unions are based on geographic proximity and colonial ties. Kiribati, Nauru, and Tuvalu, all rather small countries, maintain the Australian dollar as their currency decades after independence. The states freely associated with New Zealand (Cook Islands, Niue, and Tokelau) all use the New Zealand dollar, and the ever-disputed partially-recognised states of Abkhazia and South Ossetia (Russian ruble), Nagorno-Karabakh (Armenian dram), and Northern Cyprus (Turkish lira) all employ the currencies of their sponsoring countries.

Further Reading

Anderson, P. (2002). Montenegro’s euro challenge. BBC News, 3 January 2002. Available at http://news.bbc.co.uk/2/hi/europe/1740493.stm. Accessed 22 June 2011.

Bangor Daily News (2000). El Salvador considers adopting US dollar. 24 November 2000. Available at http://news.google.com/newspapers?id=bKVJAAAAIBAJ&sjid;=mw0NAAAAIBAJ&pg;=3104,2564539&dq;=salvadoran+colon&hl;=en. Accessed 22 June 2011.

BBC News (2009). Zimbabwe abandons its currency. 29 January 2009. Available at http://news.bbc.co.uk/2/hi/africa/7859033.stm. Accessed 22 June 2011.

Ruiz, B.C. (2003). Panama’s Paper Money. Available at http://bruceruiz.net/Currency/one_balboa_note.htm. Accessed 22 June 2011.

International Herald Tribune (2007). Euro used as legal tender in non-EU nations. 1 January 2007. Available at http://www.nytimes.com/2007/01/01/business/worldbusiness/01iht-euro.4071765.html. Accessed 22 June 2011.

 

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