IELTS Reading Strategy by Band 9 Candidate x3

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An academic reading sample passage discussing the ultimate strategies for test takers. This video includes an example of an academic IELTS reading section with a question strategy for True, False, Not Given. Instagram: ielts_aehelp

Currency Substitution:
A Currency substitution, also known as dollarisation, occurs when a country uses another country’s currency in place of its own. In partial currency substitution, a country will use another currency alongside its own, while in full dollarisation, the country uses only the other currency. Though the phenomenon is sometimes referred to as “dollarisation” in reference to the United States dollar, the target currency can be any country’s currency. Countries around the world have also “dollarized” with the Euro, Australian dollar, New Zealand dollar, South African rand, and the Swiss franc. While there are many benefits to dollarisation, there are also significant drawbacks as well.

B The story of currency substitution begins with the end of the Bretton Woods Agreement, which established the rules for financial relations between major nations during and following the Second World War. The agreement, which was based on the convertibility of the US dollar to gold, collapsed in 1971 when the United States unilaterally terminated the relationship between its currency and gold. During the intervening years, currencies were tied to the price of gold, and therefore to each other. After 1971, currencies previously tied to the value of gold became fiat currencies – currencies which ceased being valuable in relation to something external (gold) and relied on public confidence in order to retain value. This is the origin of the need for currency substitution in certain cases.

C When you think about it, the paper that money is printed on is worthless. It cannot be converted into gold, and it is not guaranteed to be converted into anything other than the bank note’s denomination. This is the result of the end of the Bretton Woods system. While many countries have succeeded financially and monetarily since 1971, others have not. For example, because fiat currency relies on the confidence of the people being issued the currency, when people lose confidence in the currency, disaster is at hand. This was the case for Zimbabwe from 2007 to 2009 and beyond. The people of Zimbabwe lost confidence in their fiat currency, and its value bottomed out in spectacular fashion. People are generally accustomed to single-digit inflation – the loss in value of a currency, but Zimbabwe’s inflation was off the charts: 80 billion pc in a single month. At the peak of Zimbabwe’s problem, a billion Zimbabawean dollars were reduced in value to a single dollar in just one month.

D For Zimababwe, the choice to dollarise was clear. They gave up their own currency, which its own people had decided was worthless, in favour of the US dollar which the people had confidence in. This configuration lasted for a decade, until 2019 when the new president Emmerson Mnangagwa decided it was worth trying a national currency again. This currency, as of March 2020, is also failing, seeing inflation rates of 500%. While short of the catastrophic rates previously seen, it is enough to highlight the manifest difficulty in managing a currency without the confidence of the public.

E Clearly, one of the benefits of currency substitution is the confidence given to the country’s people in their monetary system, which gives great economic and social benefits. For countries with a citizenry that lacks confidence in the nation’s currency, dollarisation is a very positive alternative. In addition to Zimbabwe, countries that fall into this category are El Salvador and Ecuador (USD). Dollarisation is also a preferable alternative to a national currency in the case of small nations which lack the governmental infrastructure to administer a national currency. Countries in this situation include Palau and Timor-Leste (USD), Kiribati, Nauru, and Tuvalu (Australian dollar), Andorra and Kosovo (Euro), and Liechtenstein (Swiss Franc)...

TRUE if the statement agrees with the information
FALSE if the statement contradicts the information
NOT GIVEN if there is no information on this
8 The South African rand is an example of a dollarized currency.
9 The Bretton Woods system was created in the aftermath of World War I.
10 Modern currencies require public confidence to succeed financially.