- The entire monetary base (money supply) has to be substituted with US Dollars.
- The Central Bank cannot implement any independent monetary policies once the economy is Dollarized.
- The hidden and generally unknown cost: The people of the Dollarized country continuously loses the sovereign windfall profit of seigniorage when Dollarization starts and every time new US Dollar bank notes are required as the Dollarized local economy grows. This real profit continuously accrues to the people of the United States of America (plus its multiplier effect) at apparently no cost to them.
- Monetary easing used very successfully in the US, UK and Japan, but refused by Germany for Greece, Ireland and Portugal. These countries are, in priciple, dollarized in Euros.
- Interest rate policies
- The ability of the Central Bank to be responsible for labour policies very similar to “full employment” policies in the country, like the Federal Reserve Bank´s very successful labour policy responsibilities in the US economy.
- The complete range of other normal Central Bank discretionary monetary policies.
The US Dollar is almost always used for Dollarization. It is estimated that 50% of US Dollars is used outside the US economy because of the extraordinary success of the US economy and Federal Reserve Bank over the last at least 100 years: because of the faith people in general have in the US Dollar as a relatively stable currency and unit of account.
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Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.