I keep seeing news stories on Argentina dollarizing their economy. Has it worked for other economies? How?
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Dollarization means that your economy going to crap because the government can’t manage the currency is now something from the past.
Lower inflation, lower risk, and in theory, more foreign investment and growth (because people trust the dollar more than the Argentinian peso and because now direct investment has lower financial cost)
I’m usually against dollarization because it also has its cons: The country losses their power to control monetary policies, and in case of a Crisis like Covid getting dollars won’t be easy, so if you are not swimming in reserves, you probably are gonna get screwed (just ask Ecuador about that). Another con is that without a central bank a country has no effective way of dealing with a financial crisis that affects the banks of the country (no lender of last resort), and as we learnt in 2008, banks going bankrupt is bad for everyone
However Argentina has shown so many times they are so shit are managing their economy and currency, that for them I think dollarization would be a good idea.
In summary, if your economy is somewhat stable and your central bank competent, personally, I go against dollarization. This is not the case of Argentina, so that’s why so many people want to go for it.
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