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Dollarization: a scorecard

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  • Roberto Chang

Abstract

In January of this year, Jamil Mahuad, then president of Ecuador, startled his compatriots by proposing to eliminate the national currency, the sucre. Instead, Mahuad advanced, the U.S. dollar would replace the sucre for all purposes. Although a popular uprising forced him out of office a week later, the succeeding government has actually implemented his proposal and recently announced that U.S. dollars will have completely replaced the sucre by September 2000. ; The question remains as to whether the Ecuadorian plan will be successful and, more generally, whether other countries will follow Ecuador's lead. But one thing is clear: proposals to replace the domestic currency with the U.S. dollar, or to "dollarize" the economy, have taken center stage in Latin America and other developing regions. To illustrate why dollarization has risen from neglect to such a central role, this article discusses the currently fashionable proposals for dollarization in Latin America and other developing regions. ; The article places special emphasis on identifying and analyzing various arguments for and against dollarization in the light of existing economic theory and evidence. The author compares the relative significance of the costs and benefits. Observing that measurement problems are significant, he concludes that, remarkably, the popular belief that dollarization is a desirable reform has been reached in spite of widespread uncertainty about its economic benefits.

Suggested Citation

  • Roberto Chang, 2000. "Dollarization: a scorecard," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 1-12.
  • Handle: RePEc:fip:fedaer:y:2000:i:q3:p:1-12:n:v.85no.3
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    References listed on IDEAS

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    1. Ricardo Hausmann & Michael Gavin & Carmen Pagés & Ernesto H. Stein, 1999. "Financial Turmoil and the Choice of Exchange Rate Regime," IDB Publications (Working Papers) 1108, Inter-American Development Bank.
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    4. Chang, Roberto, 1994. "Endogenous Currency Substitution, Inflationary Finance, and Welfare," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 903-916, November.
    5. Ricardo Hausmann & Michael Gavin & Carmen Pagés & Ernesto H. Stein, 1999. "Financial Turmoil and the Choice of Exchange Rate Regime," IDB Publications (Working Papers) 4128, Inter-American Development Bank.
    6. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications 4170, Inter-American Development Bank, Research Department.
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    8. Eduardo Borensztein & Andrew Berg, 2000. "The Pros and Cons of Full Dollarization," IMF Working Papers 00/50, International Monetary Fund.
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    Cited by:

    1. René Cabral-Torres, "undated". "Assessing the Impact of Real Shocks on Small Dollarized Economies," Discussion Papers 05/27, Department of Economics, University of York.
    2. Kurasawa, Kazutaka & Marty, Alvin L., 2007. ""Optimal" inflation under dollarization," Journal of International Money and Finance, Elsevier, vol. 26(2), pages 251-264, March.
    3. Cabral, René, 2010. "Why dollarization didn't succeed: Comparing credibility and the impact of real shocks on small open economies," The North American Journal of Economics and Finance, Elsevier, vol. 21(3), pages 297-313, December.
    4. Le Maux, Laurent, 2003. "Dollarisation officielle : analyse critique et alternative," L'Actualité Economique, Société Canadienne de Science Economique, vol. 79(3), pages 367-391, Septembre.
    5. Ferro, Gustavo, 2001. "Currency Board: From Stabilization to Full Dollarization? The Argentine Experience," MPRA Paper 15353, University Library of Munich, Germany.
    6. Andreas M. Fischer & Thomas J. Jordan & Caesar P. Lack, 2002. "Giving Up the Swiss Franc:Some Considerations on Seigniorage Flows under EMU," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(I), pages 61-82, March.
    7. Yinusa, Dauda Olalekan, 2008. "Between dollarization and exchange rate volatility: Nigeria's portfolio diversification option," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 811-826.
    8. Kamin, Steven B. & Ericsson, Neil R., 2003. "Dollarization in post-hyperinflationary Argentina," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 185-211, April.
    9. Ferro, Gustavo, 2001. "De bancos centrales, juntas monetarias y dolarización
      [On central banks, currency boards and dollarization]
      ," MPRA Paper 15354, University Library of Munich, Germany.
    10. Gaetano Antinolfi & Todd Keister, 2001. "Dollarization as a monetary arrangement for emerging market economies," Review, Federal Reserve Bank of St. Louis, issue Nov., pages 29-40.
    11. Michael J. Chriszt, 2000. "Perspectives on a potential North American monetary union," Economic Review, Federal Reserve Bank of Atlanta, issue Q4, pages 29-38.

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    Keywords

    Latin America ; Dollar ; Money;

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