Historical Episodes of Full Dollarization
Author: Steve H. Hanke
Outlet: Johns Hopkins IAE
Date: October 2023
Hanke surveys historical episodes of full dollarization in nearly 100 countries, assembling facts that had never before been gathered in one place. He defines full dollarization by four criteria: a foreign unit of account and foreign notes were used with official sanction and there were no domestic note issuers; modern commercial banks existed for at least part of the period; the arrangement was more than an explicitly transitory step; and use of the foreign currency was national in scale. Each episode is described using a common template covering dates, currency, political status, legislation, what preceded and succeeded dollarization, and remarks.
Several patterns emerge. There is far more historical experience with dollarization than critics assume; dollarized countries have ranged from tiny dependencies to larger economies with fairly advanced financial systems; there appears to be no case in which establishing dollarization posed great technical problems; and banking crises under dollarization have been few. Notably, the only country that ever abandoned dollarization because the anchor currency itself became unstable was Danzig, which dropped the hyperinflating German mark in 1923 — while the Dominican Republic (1900), Kosovo, Montenegro, and Ecuador (2000) all dollarized precisely to escape unstable currencies of their own. The paper is a companion to Cathy Wang's bibliography of dollarization scholarship (SAE No. 241), and Hanke credits his longtime collaborator Kurt Schuler for comments and advice.
Full Citation:
"Historical Episodes of Full Dollarization," Studies in Applied Economics, No. 242, Baltimore: The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise, October 2023.