The Governor or the Sheriff? Pacific Island Nations and Dollarization.

Recent political discussions in Australia have suggested that Pacific Island nations
should dollarize? to the Australian dollar. This is seen as a way to stabilise the economies of
the region, which have been fraught with both political and economic uncertainty. Standard
currency analysis techniques indicate that dollarization to the US dollar may be preferable to
dollarization with the Australian dollar, as strong existing links with the US dollar are
indicated, while there is less evidence to support existing relationships with the Australian
dollar. With Asia likely to overtake Australia as a dominant trading partner for major Pacific
Island economies, a discussion of currency reform in the Pacific should at least consider US
dollarization, as Australias economic influence may not be as significant as previously
assumed.