ANALYSIS OF DOLLARIZATION IN LATIN AMERICA

Abstract

Dollarization is not a new concept, but in the last couples of decades, countries such as El Salvador or Ecuador have ditched their own currency in favor of the US dollar as a way to fix their decade long macroeconomic problems in the case of Ecuador or as an effort to open their markets to the world, especially the US, which is the case of El Salvador.

In the last couple of years, the topic got popular due to statements made by now president of Argentina Javier Milei, where according to him, total dollarization could bring stability and fix the historical crisis that Argentina had with inflation, it is to note that they already tried to do something similar during the 90s with the ¿Caja de Convertibilidad¿ but it ultimately led to the 2001 crisis.

The objective of this thesis is to first understand the basic concepts behind dollarization, and later see examples of countries that dollarized, in this case Ecuador and El Salvador, what led these countries to dollarize in the first place and analyze how these countries are faring today after 2 decades.

We will also study Argentina¿s case, going in depth with the Caja de Convertibilidad reform during the nineties under President Carlos Saul Menem and the mistakes made by the government that ultimately led to the 2001 crisis and the resignation of sitting President Fernando de la Rua. Staying in Argentina we are going to see if it is possible for them to dollarize the economy and how they can achieve it as historically they been dealing with high inflation rates.