juan
"Peter K." wrote:
> [because it has worked so well in Argentina....]
>
> http://www.nytimes.com/2000/11/25/business/25SALV.html
>
> New York Times/ Business
> November 24, 2000
>
> U.S. and I.M.F. Welcome Salvador's Adoption of Dollar
> By JOSEPH KAHN
>
> El Salvador's decision to adopt the United States dollar as its currency won
> immediate support from the United States Treasury Department and the
> International Monetary Fund yesterday, reflecting a growing trend in Latin
> America to embrace the dollar as official tender.
>
> President Francisco Flores said on Wednesday that he would introduce a law
> that would fix the colon, the local currency, to the dollar and allow free
> circulation of the dollar in the economy. The move, if approved by the
> nation's Congress, is intended to end the sharp swings in the value of the
> local currency against the dollar, which are viewed as discouraging foreign
> investment and complicating management of the economy.
>
> Officials said the colon would also remain legal tender.
>
> Earlier this year, Ecuador scrapped its local currency, the sucre, for the
> dollar. Panama uses the dollar as official tender, and Argentina has pegged
> the value of its peso to the dollar, one for one.
>
> There is a continuing debate in other Latin American economies, most notably
> Mexico, about whether to allow the American currency to replace local money.
>
> Some economists say such moves enhance financial stability and may help
> attract foreign business because investors are reassured of getting their
> money out without suffering a foreign exchange loss.
>
> Critics say that so-called dollarization makes little sense because it turns
> over an important tool used in macro-economic management to the Federal
> Reserve of the United States. The Fed uses its control of interest rates to
> stimulate or cool the American economy, but does not directly consider the
> needs of other nations that use the dollar.
>
> International financial authorities have generally remained neutral about
> the advisability of small nations' adopting a larger nation's currency as
> their own. But both the Treasury Department and the I.M.F. welcomed El
> Salvador's decision.
>
> "Combined with a strong economic policy framework, this step should help
> contribute to financial stability and economic growth in El Salvador and its
> further integration into the global economy," Treasury Secretary Lawrence H.
> Summers said in a statement.
>
> El Salvador, a nation of five million people, has not grown as fast as many
> of its neighbors in recent years. Its economy expanded at a 2.5 percent pace
> in 1999, about one-third of the rate of growth in neighboring Costa Rica and
> Nicaragua.
>
> Horst Köhler, managing director of the I.M.F., said dollarization could help
> stoke economic growth, though he also urged the nation to improve its
> banking system and enact some proposed budgetary changes to accompany the
> monetary change. Mr. Köhler said the I.M.F. would consider making a loan to
> El Salvador to back the transition to the dollar.
> [end]