WHAT DOES DOLLARIZATION OFFER EMERGING MARKET COUNTRIES?
Supporters of dollarization claim it offers the following benefits: Lower Inflation: Countries would import the monetary policy of the United States, bringing inflation down toward U.S. levels. Faster Growth: A decrease in inflation risk and the elimination of devaluation risk should increase local savings, reduce interest rates, and increase foreign investment. In turn, these should stimulate economic growth. “Deeper” Financial Markets: In the eyes of many international investors, dollarization would make countries part of an overall “dollar bloc,” including the United States. This should make them less vulnerable to capital outflows in times of crisis. Dollarization would also let people keep their savings in the local currency (the dollar) and make it easier to borrow long-term. Panama, which is already dollarized, is the only Latin American country with a highly liquid and competitive market for 30-year mortgages in the local currency the dollar. Budget Discipline: Countries that d
