My first experience with dollarization in a foreign country–the
practice of adopting the U.S. dollar as legal currency–came as a
bit of a shock. Standing on a street corner in Buenos Aires in late
1997 taking cash out of an ATM, you can imagine my surprise when,
expecting 100 Argentine pesos, the machine spat out only 60 pesos,
and two crisp U.S. twenty dollar bills.
Like many other developing countries, I discovered, Argentina has
long pegged the value of the peso to the dollar, making both
currencies essentially interchangeable–a policy that halted the
hyperinflation which plagued many Latin American economies
throughout the 1980s. Imagine having to spend your entire paycheck
the day you get it because the price of eggs will double in 24
hours and you get the idea.
Now more and more countries are making similar moves, writes David
Ingram in the economics webzine The Dismal Scientist.
Panama, Cuba, Hong Kong, Bolivia, and a number of other small
countries have some form of dollarization in place. And a new bill
in Congress, the International Monetary Stability Act, sponsored by
Florida Senator Connie Mack, would make it easier for them to do
so.
Such a move, says Ingram, has major benefits for developing
economies, particularly for countries with a history of
out-of-control inflation. However, he adds, ‘dollarization has
undeniable risks, and it is not a one-size-fits-all panacea for
troubled economies.’ Though he occasionally slips into arcane
economic-speak, Ingram does an excellent job deciphering the
issues. –Leif UtneGo there>>
