Question

What are the driving forces behind currency substitution?

Answer 1

Driving forces behind currency substitution are as follows:

1. Domestic economy is going through the financial crisis and value of the domestic currency is highly volatile.

2. People want to keep their assets in foreign currency or US Dollar to protect the value.

3. To facilitate the import of goods that demand only foreign currency that is prevalent. It can be either US dollar or Euro.

4. Domestic currency is depreciation and people want more of a foreign currency.

5. To facilitate the capital flight where the foreign currency holds high value.