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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. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1999. "Hedging and Financial Fragility in Fixed Exchange Rate Regimes," NBER Working Papers 7143, National Bureau of Economic Research, Inc.
  2. Corsetti, G. & Pesenti, P. & Roubini, N., 1998. "What Caused the Asian Currency and Financial Crisis?," Papers 343, Banca Italia - Servizio di Studi.
  3. Antinolfi, Gaetano & Huybens, Elisabeth & Keister, Todd, 2001. "Monetary Stability and Liquidity Crises: The Role of the Lender of Last Resort," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 187-219, July.
  4. Francois R. Velde & Marcelo Veracierto, 2000. "Dollarization in Argentina," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 24-37.
  5. Christopher A. Sims, 2001. "Fiscal consequences for Mexico of adopting the dollar," Proceedings, Federal Reserve Bank of Cleveland, pages 597-625.
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  8. 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.
  9. Alan C. Stockman, 2001. "Optimal central bank areas, financial intermediation, and Mexican dollarization," Proceedings, Federal Reserve Bank of Cleveland, pages 648-668.
  10. 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.
  11. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  12. Bencivenga, Valerie R & Huybens, Elisabeth & Smith, Bruce D, 2001. "Dollarization and the Integration of International Capital Markets: A Contribution to the Theory of Optimal Currency Areas," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 548-89, May.
  13. Mendoza, Enrique G, 2001. "The Benefits of Dollarization When Stabilization Policy Lacks Credibility and Financial Markets Are Imperfect," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 440-74, May.
  14. Frederic S. Mishkin, 2000. "Lessons from the Asian Crisis," NBER Working Papers 7102, National Bureau of Economic Research, Inc.
  15. Marco Del Negro & Francesc Obiols-Homs, 2000. "Has monetary policy been so bad that it is better to get rid of it? the case of Mexico," Working Paper 2000-26, Federal Reserve Bank of Atlanta.
  16. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  17. 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.
  18. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
  19. Ricardo J. Caballero & Arvind Krishnamurthy, 2000. "Dollarization of Liabilities: Underinsurance and Domestic Financial Underdevelopment," NBER Working Papers 7792, National Bureau of Economic Research, Inc.
  20. Huberto M. Ennis, 2000. "Banking and the political support for dollarization," Working Paper 00-12, Federal Reserve Bank of Richmond.
  21. 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.
  22. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  23. 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.
  24. Thomas F. Cooley & Vincenzo Quadrini, 2001. "The costs of losing monetary independence: the case of Mexico," Proceedings, Federal Reserve Bank of Cleveland, pages 370-403.
  25. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  26. 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.
  27. Eichengreen, Barry, 2001. "What problems can dollarization solve?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 267-277, April.
  28. 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.
  29. Roberto Chang, 2000. "Dollarization: a scorecard," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 1-12.
  30. J. E. Stiglitz, 1999. "Introduction," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 28(3), pages 249-254, November.
  31. 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.
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