Chapter

The Pros and Cons of Full Dollarization

Andrew Berg and Eduardo R. Borensztein

in The Dollarization Debate

Published in print May 2003 | ISBN: 9780195155358
Published online November 2003 | e-ISBN: 9780199832989 | DOI: http://dx.doi.org/10.1093/0195155351.003.0004
The Pros and Cons of Full Dollarization

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This chapter examines the benefits and costs of full dollarization. It considers emerging market economies in Latin America exposed to volatile capital flows, but not necessarily close, in an economic sense, to the United States. For an extremely dollarized economy, seigniorage revenues would be small, exposures of banks and businesses would make devaluation financially risky, and the exchange rate would not serve as a policy instrument since prices would be “sticky” in dollar terms. In such cases, dollarization offers more benefits and costs.

Keywords: dollarization; currency risk; seigniorage; monetary policy; Latin America

Chapter.  10897 words.  Illustrated.

Subjects: International Economics

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