Is Adopting Full Dollarization the Solution? Looking at the Evidence

24 Pages Posted: 19 Sep 2000

See all articles by Ilan Goldfajn

Ilan Goldfajn

Gávea Investimentos; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Central Bank of Brazil

Gino Olivares

Insper Institute of Education and Research; Pontifical Catholic University of Rio de Janeiro (PUC-Rio)

Abstract

The Paper discusses the advantages and disadvantages of the full dollarization and offers a few stylized facts and conclusions regarding the effects of full dollarization. On one hand, a full-dollarized economy delivers an impressive inflation performace and may even reduce the impact of external confidence shocks, although not external real shocks. On the other hand, full dollarization does not guarantee fiscal discipline neither the elimination of currency risk precludes default risk or the high volatility of sovereigh spreads. In addition, it is not clear whether the redution in domestic interest rates is the consequence of full dollarization or the competitive internationalized banking system.

JEL Classification: E42, F31

Suggested Citation

Goldfajn, Ilan and Olivares, Gino, Is Adopting Full Dollarization the Solution? Looking at the Evidence. Available at SSRN: https://ssrn.com/abstract=224278 or http://dx.doi.org/10.2139/ssrn.224278

Ilan Goldfajn

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Gino Olivares (Contact Author)

Insper Institute of Education and Research ( email )

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