Final answer:
The main advantage of having a CBS over dollarization is greater monetary independence, enabling the country to have control over its monetary policy. Dollarization results in relinquishing control over key financial tools such as interest rates and inflation adjustments, potentially limiting the ability to respond to economic changes effectively.
Step-by-step explanation:
One advantage of a country having its own central banking system (CBS) as opposed to dollarization is a. Greater monetary independence. Having a central bank allows for control over monetary policy, which can be tailored to the specific economic needs of the country. In contrast, dollarization, where a country adopts another currency such as the US dollar, means relinquishing this control. The central bank in a dollarized country would lack the ability to issue its own currency and influence things like interest rates and inflation directly, limiting its capacity to respond to economic fluctuations and domestic financial crises effectively. When a country possesses its own central bank, it has the ability to enact monetary policies that can help stabilize its economy without being reliant on the monetary policy of the foreign currency it would otherwise use. This allows for more responsive and target-oriented financial management, aiding in the avoidance of situations such as rampant inflation due to imprudent expansion of the money supply. Consequently, the central bank can act as a buffer against political pressure, which may lead to unsustainable fiscal policies if left unchecked.