As Salvadorans bustle around the capital doing holiday shopping,
many know this will be the last Christmas they will be paying with
the colorful bills of the colon, their national currency.
In a controversial move, the Salvadoran government made the
announcement in late November that beginning Jan. 1, the nation will
start using dollars alongside the colon. The measure is aimed at the
eventual total replacement of the national currency.
Greenbacks already circulate widely in this tiny Central American
nation, which receives $1.5 billion a year in remittances from
family members residing in the US.
With this move, El Salvador has taken a clear position in the
growing international debate as to whether emerging markets, like
those in Latin America, should dollarize. Analysts here maintain
that the US and multinational lending intuitions are increasingly
pressing for dollarization, and that El Salvador's experience could
influence whether other nations follow suit.
"El Salvador is the test for the thesis that some maintain, that
the countries in Latin America should adopt the dollar. The rest of
the nations are going to watch carefully what happens here," says
Hector Dada Hirezi, director of the El Salvador program of the
Latin American Faculty for Social Sciences (FLACSO).
El Salvador is the second country, behind Ecuador, to dollarize
in the past year. Panama has used the dollar since the early 1900s.
Since 1991, Argentina's peso has been fixed at a one-to-one rate
with the dollar and is convertible on demand. The country has since
Since El Salvador's decision, Guatemala's Congress has been
considering legalizing bank accounts and the payment of checks in
dollars. Meanwhile, Vicente Fox, Mexico's newly inaugurated
president, already has vowed not to dollarize. The dollar is widely
used in many countries in Latin America, such as Peru, some states
in Mexico, and Nicaragua, which have not officially dollarized.
The Salvadoran government says its move will legalize the already
prevalent use of the dollar and prevent devaluation of its currency.
The colon's value will be fixed at 8.75 to the dollar. "Now there
will be no risk of fluctuating exchange rates and this will give
international and national investors more confidence in El
Salvador," says Jose Mauricio Quinteros, a congressman with ARENA,
the right-wing ruling party.
In past weeks, the government has flooded the airways with
propaganda extolling the benefits of dollarization. According to
the government, Salvadorans will enjoy more access to loans, and
interest rates will fall since loans will be given in a stable
The FMLN, the left-leaning party of the former guerrilla movement
of the same name, firmly opposes the measure. "The nation's economy
has been in decline since 1995 and the government took this measure
to try and save its failing economic plan. But this is not going to
change the economic situation," says Schafik Handal, a prominent
FMLN congressman. …