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Economic Development of Central America Econ. 4200 - Spring 2004 – Dr. Taylor - page 71 / 153

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$900

c5,400

-$100

-c600

$1,000

c6,000

Liabilities

Assets

Carlos' Account at Commercial Bank

c5,999,400

$999,900

c5,999,999,400

$999,999,900

-c600

-$100

-c600

-$100

Checking deposits:

c6,000,000

Reserves:

$1,000,000

Reserves:

c6,000,000,000

Reserves:

$1,000,000,000

Liabilities

Assets

Liabilities

Assets

Commercial Bank

Central Bank

Carlos decides that he wants to withdraw 600 colones to buy something. Stores are already posting prices in both colones and dollars and accepting either as payment for purchases. Carlos goes to the bank and the teller hands him $100 instead of c600. Carlos is surprised yet knows that the $100 buys c600 worth of merchandise. Carlos makes his purchase at the store and goes his merry way. In time colones become less common and dollars the standard unit of accounting, store of value and medium of exchange. At the end of the transition period… 3 years in the case of El Salvador… the government announces that colones will no longer be honored effective 12/31/2003 (stopped printing colones 1/1/2001).

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