at 6 colones = $1
- PPP exchange rate set
Carlos' Checking Account at Primero Commercial Bank
Primero Commercial Bank
Dollarization example… in this example the purchasing power parity exchange rate is set at 6 colones to the dollar. It is determined that there are 6 billion colones in circulation. The Federal Reserve arranges to ship El Salvador $1 billion dollars in newly minted bills and coins. Carlos is informed of the new monetary system through the media and given so much time to exchange the colones in his pocket. He is also told that his bank account will be converted to dollars on a certain date at the 6 to 1 rate.