Official dollarization : a last resort solution to financial instability in Latin America ?
This paper will analyse the debate about official dollarization in Latin America. Because of the opportunity cost of dollarization, replacing a national currency by a foreign currency is a solution of last resort to the financial instability of emerging economies. To clarify the discussion, a taxonomy of dollarization regimes is drawn up in order to make an inventory of officially dollarized countries, territories and dependencies. The foundations for adopting complete dollarization are analysed through three elements : an account of the limits to corner solutions, the identification of the economic contexts which are favourable to the adoption of foreign currencies and the reasons behind the legitimacy crisis of national currencies. To determine what is at stake in such decisions, cost advantage analysis mentions, first of all, the expected benefits highlighted by the advocates of complete dollarization. A detailed study of its potential impact will then allow us to evaluate the induced costs of the disappearance of national currencies. Finally, by looking at emerging countries that have adopted this exchange regime, the limits of adopting such a solution are underlined, particularly by the fact that the disappearance of national currencies implies an abandonment of monetary sovereignty and a loss of a powerful symbol of national assertion and identity.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Web page: http://gres.u-bordeaux4.fr/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Masson, Paul R., 2001.
"Exchange rate regime transitions,"
Journal of Development Economics,
Elsevier, vol. 64(2), pages 571-586, April.
- Chang, R. & Velasco, A., 1998.
"Financial Fragility and the Exchange Rate Regime,"
98-05, C.V. Starr Center for Applied Economics, New York University.
- Roberto Chang & Andres Velasco, 1997. "Financial fragility and the exchange rate regime," Working Paper 97-16, Federal Reserve Bank of Atlanta.
- Roberto Chang & Andres Velasco, 1998. "Financial Fragility and the Exchange Rate Regime," NBER Working Papers 6469, National Bureau of Economic Research, Inc.
- Francois R. Velde & Marcelo Veracierto, 2000.
"Dollarization in Argentina,"
Federal Reserve Bank of Chicago, issue Q I, pages 24-37.
- Guillermo A. Calvo & Carmen M. Reinhart, 2000.
"Fear of Floating,"
NBER Working Papers
7993, National Bureau of Economic Research, Inc.
- Jérôme Sgard, 2003. "Hyperinflation and the Reconstruction of a National Money: Argentina and Brazil, 1990-2002," Working Papers 2003-01, CEPII research center.
- Calvo, Guillermo A, 2001.
"Capital Markets and the Exchange Rate with Special Reference to the Dollarization Debate in Latin America,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 33(2), pages 312-34, May.
- Guillermo A. Calvo, 2001. "Capital markets and the exchange rate with special reference to the dollarization debate in Latin America," Proceedings, Federal Reserve Bank of Cleveland, pages 312-338.
- William C. Gruben & Mark A. Wynne & Carlos E.J.M. Zarazaga, 2001. "Dollarization and monetary unions: implementation guidelines," Center for Latin America Working Papers 0201, Federal Reserve Bank of Dallas.
When requesting a correction, please mention this item's handle: RePEc:grs:wpegrs:2005-02. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vincent Frigant)
If references are entirely missing, you can add them using this form.