Argument: Dollarization shows commitment to renouncing currency devaluations

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 “If dollarization is permanent, it eliminates the possibility of currency crises. Mendoza (2000) argues that eliminating distortionary uncertainty over the duration of stabilization policies can deliver substantial welfare gains (see also Calvo 1999 and Berg and Borensztein 2000). Dollarization also solves the ‘fear of floating’ problem (Calvo 2000) which arises when international liabilities are denominated in dollars and currency devaluations therefore precipitate debt crises.”

• C. Fred Bergsten, Peterson Institute. “Dollarization in Emerging-Market Economies and Its Policy Implications for the United”. Testimony before the Joint Hearing of the Subcommittee on Economic Policy and the Subcommittee on International Trade and Finance. 1999 – “Dollarization can thus be conceptualized as a ‘currency board plus,’7 in three senses. First, it imparts even greater credibility to a country’s commitment to forever renounce the devaluation option.”