Argument: Dollarization can help lower borrowing costs

Support

• Cristina Arellano and Jonathan HeathcoteBoard , “Dollarization and Financial Integration” Board of Governors of the Federal Reserve System, International Finance Discussion Papers, Number 890, February 2007 “Dollarization may be attractive precisely because eliminating the monetary instrument can strengthen incentives to repay debts, and thereby increase access to international credit. This is a new way to think about how relinquishing monetary independence may strengthen credibility.We find that the historical experience of countries that have delegated control of monetary policy is consistent with the idea that dollarizing can make it easier for a country to borrow. In particular, countries that have dollarized saw the cost of sovereign borrowing fall around the time they abandoned the domestic currency.”