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Dollarization as a monetary arrangement for emerging market economies

  • Gaetano Antinolfi
  • Todd Keister

Official dollarization refers to the adoption of the U.S. dollar as legal tender in place of the national currency. Some Latin American countries have recently dollarized, and others have seriously considered dollarization. This article discusses the reasons behind the surge of interest in dollarization and provides a review of the new academic literature on the topic. It discusses in detail some of the factors that are commonly considered to be the important costs and benefits of dollarizing. The paper also provides an analysis of the existing liability dollarization in several countries and its relation with official dollarization. Finally, it briefly looks at dollarization from the perspective of the United States.

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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2001)
Issue (Month): Nov. ()
Pages: 29-40

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Handle: RePEc:fip:fedlrv:y:2001:i:nov.:p:29-40:n:v.83no.6
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  1. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  2. Del Negro, Marco & Obiols-Homs, Francesc, 2001. "Has Monetary Policy Been so Bad that It Is Better to Get Rid of It? The Case of Mexico," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 404-33, May.
  3. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1999. "Hedging and financial fragility in fixed exchange rate regimes," Working Paper Series WP-99-11, Federal Reserve Bank of Chicago.
  4. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  5. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-28, November.
  6. Christopher A. Sims, 2001. "Fiscal consequences for Mexico of adopting the dollar," Proceedings, Federal Reserve Bank of Cleveland, pages 597-625.
  7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  8. Cooley, Thomas F & Quadrini, Vincenzo, 2001. "The Cost of Losing Monetary Independence: The Case of Mexico," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 370-97, May.
  9. Ghiglino, Christian & Shell, Karl, 2000. "The Economic Effects of Restrictions on Government Budget Deficits," Journal of Economic Theory, Elsevier, vol. 94(1), pages 106-137, September.
  10. Gaetano Antinolfi & Elisabeth Huybens, 2000. "Monetary Stability and Liquidity Crises: The Role of the Lender of Last Resort," Econometric Society World Congress 2000 Contributed Papers 1156, Econometric Society.
  11. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis?," Temi di discussione (Economic working papers) 343, Bank of Italy, Economic Research and International Relations Area.
  12. Roberto Chang, 2000. "Dollarization: a scorecard," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 1-12.
  13. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  14. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  15. Enrique G. Mendoza, 2001. "The benefits of dollarization when stabilization policy lacks credibility and financial markets are imperfect," Proceedings, Federal Reserve Bank of Cleveland, pages 440-481.
  16. Frederic S. Mishkin, 2000. "Lessons from the Asian Crisis," NBER Working Papers 7102, National Bureau of Economic Research, Inc.
  17. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  18. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  19. Huberto M. Ennis, 2000. "Banking and the political support for dollarization," Working Paper 00-12, Federal Reserve Bank of Richmond.
  20. Stockman, Alan C, 2001. "Optimal Central Bank Areas, Financial Intermediation, and Mexican Dollarization," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 648-66, May.
  21. Borjas, George J & Fischer, Eric O'N, 2001. "Dollarization and the Mexican Labor Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 626-47, May.
  22. Francois R. Velde & Marcelo Veracierto, 1999. "Dollarization in Argentina," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Jun.
  23. Christopher J. Neely, 1999. "An introduction to capital controls," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 13-30.
  24. Valerie R. Bencivenga & Elisabeth Huybens & Bruce Smith, 2001. "Dollarization and the integration of international capital markets; a contribution to the theory of optimal currency areas," Proceedings, Federal Reserve Bank of Cleveland, pages 548-596.
  25. Michael R. Pakko & Howard J. Wall, 2001. "Reconsidering the trade-creating effects of a currency union," Review, Federal Reserve Bank of St. Louis, issue May, pages 37-46.
  26. Eichengreen, Barry, 2001. "What problems can dollarization solve?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 267-277, April.
  27. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Stabilization policy and the costs of dollarization," Proceedings, Federal Reserve Bank of Cleveland, pages 482-517.
  28. Ricardo J. Caballero & Arvind Krishnamurthy, 2000. "Dollarization of Liabilities: Underinsurance and Domestic Financial Underdevelopment," NBER Working Papers 7792, National Bureau of Economic Research, Inc.
  29. Andrew Berg & Paolo Mauro & Michael Mussa & Alexander K. Swoboda & Esteban Jadresic & Paul R. Masson, 2000. "Exchange Rate Regimes in an Increasingly Integrated World Economy," IMF Occasional Papers 193, International Monetary Fund.
  30. J. E. Stiglitz, 1999. "Introduction," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 28(3), pages 249-254, November.
  31. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
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