Why Dollarize?

Dollarization is a powerful antidote to the chronic problems caused by weak domestic currencies. By adopting a proven stable currency, countries with histories of high inflation or currency crises can instantly import credibility and stability.

For developing countries, there are virtually no downsides to replacing an "inferior" domestic currency with a "superior" foreign one.

— Steve H. Hanke

Hanke's 6-Point Case for Dollarization

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1. Ends inflation instantly — Removes the ability to create money, making sustained high inflation impossible

2. Reduces interest rates — Country risk premium is eliminated entirely, bringing borrowing costs down immediately

3. Prevents speculative attacks — There is no domestic currency to attack; exchange-rate crises become impossible

4. Forces fiscal discipline — Government cannot print money to finance deficits; must borrow honestly or cut spending

5. Restores business confidence — Investors can plan long-term without currency risk; investment flows increase

6. Reduces transaction costs — Eliminates foreign-exchange friction with the anchor currency country, lowering trade costs

Panama: 120 Years of Proof

Panama's 120-year dollarization is the ultimate proof-of-concept. Dollarized since 1904 with the U.S. dollar, Panama has never experienced hyperinflation, never had a currency crisis, and has maintained financial stability through multiple global recessions. No other Latin American country can match Panama's record of monetary stability. Panama's dollarization long pre-dates modern monetary theory — yet it vindicated every argument Hanke has made about hard currency constraints.

In brief, I am a monetarist. MV = PQ.

“Inflation is always and everywhere a monetary phenomenon.” - Milton Friedman

Related Pages

• What Is Dollarization?
• Steve Hanke's Dollarization Work
• Dollarization Solutions Timeline
• Argentina (Dollarization)
• Montenegro
• Ecuador
• Home: Dollarization — Return to the Dollarization overview