However, banks in dollarized countries may borrow in local money markets that are closely linked to world markets through the presence of U.S. and other foreign banks. The head offices of those banks can act as sources of emergency funds for their own branches and for other banks in the dollarized country. It is also possible for a dollarized country to establish an international line of credit, such as Argentina has established for its currency board-like system. So, a dollarized system has or can devise substitutes for a central bank as a lender of last resort. A dollarized country has no need for exchange controls to support the local currency.
Dollars flow in and out of the country from trade, unilateral transfers, and capital exchanges.
In 2000, Ecuador abandoned its domestic currency and now relies on U.S. dollars for trade. Its decision to dollarize was made because the local government was unable to demonetize when inflation was high and to remonetize when inflation was low. In both cases, dollarization is expected to reduce the adverse effects of capital flight on domestic financial intermediation. However, the effectiveness of this measure hinges crucially on the public s confidence on the sustainability of the dollarization regime.