Dollarization in Argentina

By Velde, Francois R.; Veracierto, Marcelo | Economic Perspectives, Spring 2000 | Go to article overview

Dollarization in Argentina


Velde, Francois R., Veracierto, Marcelo, Economic Perspectives


Introduction and summary

In January 1999, Argentina announced that it was considering adopting the U.S. dollar as its sole medium of exchange. This policy proposal, which is known as "dollarization," received considerable attention from both policymakers and the media, generating an ongoing debate. This article discusses from a critical perspective some of the issues raised in this debate. Although we do not reach a definite answer on whether Argentina should dollarize, we believe that our work sheds considerable light on the costs and benefits associated with it.

The debate over dollarization is part of a broader, longstanding, and ongoing debate over the relative merits of monetary arrangements. The general question is whether a country's currency should be tied to some anchor, and, if so, to which anchor and how tied. The question involves a variety of issues, depending on the context in which it is raised. In the international context, this question becomes the debate about fixed and flexible exchange rates and optimal currency areas. [1] Dollarization is simply the most extreme form of a fixed exchange rate. When one abstracts from international considerations, as one would for a relatively closed economy like Argentina's, in which international trade matters less, the context is the debate over "rules versus discretion": Should monetary policy be tied to a rigid rule or should central bankers be allowed discretion in their conduct of policy? Dollarization is the ultimate rule, or the total absence of discretion.

While the choice of anchor for monetary systems has been debated for centuries, the question of dollarization has been posed relatively recently. Indeed, Mundell wrote in his classic paper (Mundell, 1961) that "it hardly appears within the realm of political feasibility that national currencies would ever be abandoned in favor of any other arrangement." More recently, Schwartz (1993) wrote in her review of the history of currency boards that "central banks seem to me strongly entrenched and unlikely to be dislodged even if their policies create hyperinflations." Yet currency boards have made a comeback of sorts, with Hong Kong since 1983 and Argentina since 1991 as the most prominent examples. [2] Dollarization has been evoked in Argentina. But the debate has sprung up elsewhere. Just as the European common market led to European monetary union, some have argued that the members of the North American Free Trade Agreement, particularly Mexico, should seriously consider dollarization. Most recently, on January 9, 2000, the president of Ecuador announced plans to immediately dollarize his country's economy, retaining the local currency only for small change.

American officials have repeatedly taken a very balanced position on the matter; while not rejecting the idea out of hand, and while admitting that the U.S. could not prevent a country from adopting the dollar as currency, they have issued strong cautionary notes. At present, following the election of a new president on October 25, Argentina has stated a strong commitment to the current currency board arrangement, and U.S. Secretary of the Treasury Lawrence H. Summers recently concluded that the question of dollarization is not on Argentina's agenda. The topic, however, has now raised interest in academic and business circles.

This article restricts attention to the particular case of Argentina. Argentina has a long history of disastrous monetary policies and repeated hyperinflations, which have led it to peg its currency to the dollar since 1991. Since Argentina is in practice already quite close to being fully dollarized, it presents a good illustration of what is (and is not) required for a successful dollarization and what are the costs and benefits associated with it.

We first present the facts about Argentina's case, in particular the historical background to Argentina's peg to the dollar since 1991. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Dollarization in Argentina
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.