“Basics of Dollarization”, Joint Economic Committee Staff Report July 1999, Updated January 2000 “A second class of benefits comes from lower inflation now and lower risk of future inflation. By using a foreign currency, an officially dollarized country assures itself of a rate of inflation close to that of the issuing country. Using the dollar, euro, or yen would reduce inflation to single digits from the double-digit levels that many developing countries now have. Because confidence exists that inflation in the dollar, euro, and yen will continue to be low, they have low and relatively steady interest rates. Low inflation increases the security of private property. Money is the most widely held form of property. Inflation is a kind of tax on money, and the lower and less variable inflation is, the more secure are property rights in money. Because other financial assets are denominated in money (currency units), low inflation also increases their security, which encourages saving and long-term lending. Panama is the only independent Latin American country where 30-year fixed-rate mortgages are available without government subsidies because it is the only one that has not suffered high inflation and currency devaluations in the last 15 years. Low inflation also helps retirees, people on fixed incomes, and people too poor to have bank accounts by assuring that their savings retain value.”
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