La dollarisation comme solution en dernier ressort

Abstract

Ecuador has recently adopted the US dollar as legal tender. Salvador is on the verge of doing so; Guatemala and Costa-Rica are attempting at the same substitution to their own currency. But, the prospect is now more general. In other parts of the world, the dollarization progresses, too; Eastern-Timor and Kosovo have just before replaced their currency, respectively by the dollar and the mark; Balkanic countries are about to dol- larize ("euroize") their economies. Earlier, the South-African rand was substituted to the Lesotho, Swaziland and Namibie national currencies. Now we are far from the previous straight field of official dollarization. A few years ago, it concerned, except the specific case of Panama [1904], only "microscopic" territories like Pacific Island (Guam, Micronesia, etc.) or little cities as, in Europe, Andorra, Lichtenstein, Monaco or the Vatican. Now, official dollarization is quite another phenomenon. It is often presented as a general formula available to reform the International Monetary System (IMS). This solution is now proposed to replace a lot of currencies eroded by inflation, deficits, political crisis, if not by revolts and ethnic troubles. Initially, it seems quite logical to try to replace "minor currencies" by a few number of foreign currencies well identified by the markets and more credible. The main argument of this paper is precisely to discuss this prospect of dollarization used to simplify and rationalize the IMS. Before adopting this view, which seems too optimistic, it would be necessary to consider: - The sound and specific nature of dollarization as a "borrowing contact of credibility in the last resort". —The interest in dollarization, relatively to other exchange rate arrangements like Monetary Unions or Currency Boards. —A cost-benefits analysis of this substitution of a foreign currency to a local one. —An application of the dollarization formula to the Canadian dollar and Eastern Central European countries.