Pacific island countries and dollarisation

Abstract

Recent discussions in Australia have suggested that Pacific island countries should 'dollarise' to the Australian dollar. This is seen as a way to stabilise the economies of the region, which have been fraught with political and economic uncertainty. Standard currency analysis techniques indicate that dollarisation to the US dollar may be preferable. With Asia likely to overtake Australia as a dominant trading partner of major Pacific island economies, a discussion of currency reform in the Pacific should at least consider US dollarisation.