Addressing the Symptoms and Ignoring the Causes: A View from Wall Street on Dollarization

10 Pages Posted: 10 Apr 2000

Date Written: March 1, 2000

Abstract

Dollarization removes access to monetary and exchange rate policies. Proponents hope that these constraints will force governments to adopt institutional reforms. However, it is interesting to note that the countries that seriously consider dollarization are only those under extreme economic stress. We argue that politicians who pursue dollarization appear to be more interested in political survival rather than forcing their countries into a draconian adjustment needed to sustain the policy. The real motive behind dollarization is to create an illusion of monetary and exchange rate stability by fixing nominal variables. However, households and investors will lose confidence as soon as they realize that the government will not implement the real reforms needed to sustain the policies.

JEL Classification: E0

Suggested Citation

Molano, Walter Thomas, Addressing the Symptoms and Ignoring the Causes: A View from Wall Street on Dollarization (March 1, 2000). Available at SSRN: https://ssrn.com/abstract=214288 or http://dx.doi.org/10.2139/ssrn.214288

Walter Thomas Molano (Contact Author)

BCP Securities, LLC ( email )

289 Greenwich Ave
Research Department
Greenwich, CT 06830
United States
203-849-7577 (Phone)
203-849-0625 (Fax)

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