The Latin American Dollar Standard in the Post-Crisis Era

Abstract

This paper examines the extent to which there is currently a in Latin America by empirically looking at the time series relationships between local currencies and the major global currencies using daily data over the period 2003-2006. The results indicate that three countries in the Andes - Ecuador (which is officially dollarized), Bolivia, and Peru - are on practically perfect dollar standards and might find additional financial integration fairly practicable. Four more countries - Guyana, Uruguay, Argentina, and Paraguay - are nearly on a dollar standard and might easily move closer to dollarization. Guyana, Uruguay, and Paraguay have economies substantially smaller than that of Ecuador, which has already officially dollarized, and might find similar full dollarization relatively easy. Argentina, although having abandoned its currency board mechanism, seems to be engineering (or at least allowing) a persistent, though imperfect, link to the dollar. Mexico and Colombia are on a partial dollar standard, but exhibit influence from other currencies as well (the yen and the pound for Mexico, and the yen and the euro for Colombia). Four additional currencies investigated - Chile, Brazil, Canada, and Venezuela - are further from a dollar standard but are certainly not completely independent of the dollar either.