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 “Ecuador dollarized in 2000 in the midst of a severe economic crisis with a collapsing banking system, a sliding local currency, and after defaulting on its Brady bonds in late 1999. The regime was implemented in an attempt to reduce inflation, bring stability to the economy, and gain credibility with international investors. Since dollarization, Ecuador’s inflation has been significantly reduced to single digits.El Salvador implemented its dollarization plan in 2001. Figure 1 shows that the spread on dollar loans has decreased by over 400 basis points since 2001. In fact the very day after the new currency was adopted, the interest rate on consumer mortgages fell from 17 to 11 percent. Consumer credit has been growing, and the government and the corporate sector have benefited from cheaper international borrowing.”
those which are very small and very dependent on the world economy, like Hong Kong, and hence would simply be buffeted too sharply by constant exchange-rate fluctuations”
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