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Is adopting Full Dollarization the solution? Looking at the evidence

Author

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  • Ilan Goldfajn

    () (Department of Economics PUC-Rio)

  • Gino Olivares

Abstract

The paper discusses the advantages and disadvantages of the full dollarization option and offers a few stylized facts and conclusions regarding the effects of full dollarization. On one hand, a full-dollarized economy delivers an impressive inflation performance and may even reduce the impact of external confidence shocks, although not external real shocks. On the other hand, full dollarization does not guarantee fiscal discipline neither the elimination of currency risk precludes default risk or the high volatility of sovereign spreads. In addition, it is not clear whether the reduction in domestic interest rates is the consequence of full dollarization or the competitive internationalized banking system.

Suggested Citation

  • Ilan Goldfajn & Gino Olivares, 2000. "Is adopting Full Dollarization the solution? Looking at the evidence," Textos para discussão 416, Department of Economics PUC-Rio (Brazil).
  • Handle: RePEc:rio:texdis:416
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    File URL: http://www.econ.puc-rio.br/pdf/td416.pdf
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    References listed on IDEAS

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    Cited by:

    1. Aloisio Araujo & Marcia Leon, 2002. "Speculative Attacks on Debts, Dollarization and Optimum Currency Areas," Working Papers Series 40, Central Bank of Brazil, Research Department.
    2. Fabio Ghironi & Alessandro Rebucci, 2000. "Monetary Rules for Emerging Market Economies," Boston College Working Papers in Economics 476, Boston College Department of Economics, revised 13 Aug 2001.
    3. Sebastian Edwards & I. Igal Magendzo, 2003. "Dollarization and economic performance: What do we really know?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 351-363.
    4. Jian-Ye Wang & Nisreen H. Farhan & Amar Shanghavi & Márcio Valério Ronci & Misa Takebe, 2008. "The Choice of Monetary and Exchange Rate Arrangements for a Small, Open, Low-Income Economy; The Case of São Tomé and Príncipe," IMF Working Papers 08/118, International Monetary Fund.
    5. Fabio Canova, 2005. "The transmission of US shocks to Latin America," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 229-251.
    6. Roberto Chang, 2000. "Dollarization: a scorecard," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 1-12.
    7. Craine, Roger, 2001. "Dollarization: An Irreversible Decision," Department of Economics, Working Paper Series qt404915zn, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    8. Sebastian Edwards & I. Igal Magendzo, 2001. "Dollarization, Inflation and Growth," NBER Working Papers 8671, National Bureau of Economic Research, Inc.
    9. Roger Craine, 2001. "Dollarization: An Irreversible Decision," International Finance 0103003, EconWPA.

    More about this item

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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