The Pros and Cons of Full Dollarization

March 1, 2000

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Format: Chicago

Eduardo Borensztein, and Andrew Berg. The Pros and Cons of Full Dollarization, (USA: International Monetary Fund, 2000) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We analyze the costs and benefits of full dollarization compared to its closest alternative, a currency board, quantifying for Argentina where possible. Potential advantages include lower borrowing costs and deeper integration into world markets. One cost is the transfer of seigniorage to the United States. The country may also lose the “exit option” to devalue in the face of major shocks. Similarly, even a country with a currency board may lose some ability to act as lender of last resort to the banking system. We review how various country characteristics influence the balance of arguments.

Subject: Currencies, Currency boards, Currency crises, Dollarization, Financial crises, Foreign exchange, Monetary policy, Money

Keywords: Crisis risk, Currencies, Currency, Currency boards, Currency Crises, Currency risk, Devaluation risk, Dollar, Dollar-denominated bond, Dollarization, Exchange Rate Regimes, Global, Monetary Union, U.S. dollar, Unit of account, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/050
Stock No:

WPIEA0502000
ISBN:

9781451846966
ISSN:

1018-5941

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