As of December 1999, net international reserves equaled US$1.8 billion or roughly five months of imports. Having this hard currency buffer to work with, the Salvadoran Government undertook a monetary integration plan beginning January 1, 2001, by which the U.S. dollar became legal tender alongside the colon, and all formal accounting was undertaken in U.S. dollars. This way, the government has formally limited its possibility of implementing open market monetary policies to influence short term variables in the economy. Since 2004, the colon stopped circulating and is now never used in the country for any type of transaction; however some stores still have prices in both colones and U.S. dollars. In general, people were unhappy with the shift from the colon to the U.S. dollar, because wages are still the same but the price of everything increased. Some economists claim this rise in prices would have been caused by inflation regardless even had the shift not been made. Some economists also contend that now, according to Gresham's Law, a reversion to the... [continues]
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