But it is also a dangerous course of action for those countries that might one day find themselves having to change the exchange rate. There is some evidence that the provision of price-indexed financial assets helps reduce the extent of dollarization. That makes considerable sense, since the underlying issue for asset-holders is increasing the safety of their portfolios.
Generally countries that suffer from high inflation, which empirically means also unstable inflation, provide a range of assets, including both price- and foreignexchange indexed assets. But extensive price level indexation, like dollarization or exchange-rate indexation, may also complicate the response of the economy to shocks.