Is Adopting Full Dollarization the Solution? Looking at the Evidence

24 Pages Posted: 19 Sep 2000

See all articles by Ilan Goldfajn

Ilan Goldfajn

Gávea Investimentos; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Central Bank of Brazil

Gino Olivares

Insper Institute of Education and Research; Pontifical Catholic University of Rio de Janeiro (PUC-Rio)

Abstract

The Paper discusses the advantages and disadvantages of the full dollarization 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 performace 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 sovereigh spreads. In addition, it is not clear whether the redution in domestic interest rates is the consequence of full dollarization or the competitive internationalized banking system.

JEL Classification: E42, F31

Suggested Citation

Goldfajn, Ilan and Olivares, Gino, Is Adopting Full Dollarization the Solution? Looking at the Evidence. Available at SSRN: https://ssrn.com/abstract=224278 or http://dx.doi.org/10.2139/ssrn.224278

Ilan Goldfajn

Gávea Investimentos ( email )

Rua Dias Ferreira, 190 7th andar
22431-050 Rio de Janeiro
Brazil

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia DF 70074-900, Distr. Federal 70074-900
Brazil
61-4143232 (Phone)
61-2260767 (Fax)

Gino Olivares (Contact Author)

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil
55-11-4504-2420 (Phone)

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) ( email )

Rua Marquas de Sao Vicente, 225
RJ 22453-900 Rio de Janeiro, 22453-900
Brazil

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