In all long-standing currency substitution cases, historical and political reasons have been more influential than an evaluation of the economic effects of currency substitution.
An empirical finding suggests that inflation has been significantly lower in economies with full currency substitution than nations with domestic currencies.
Partial currency substitution occurs when residents of a country choose to hold a significant share of their financial assets denominated in foreign currency.
On the other hand, currency substitution leads to the loss of seigniorage revenue, the loss of monetary policy autonomy, and the loss of the exchange rate instruments.
Currency substitution can not eliminate the risk of an external crisis but provides steadier markets as a result of eliminating fluctuations in exchange rates.
This cost depends adversely on the correlation between the business cycle of the client country (the economy with currency substitution) and the business cycle of the anchor country.