IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2006-082.html
   My bibliography  Save this paper

Adopting Full Dollarization in Postconflict Economies: Would the Gains Compensate for the Losses in Liberia?

Author

Listed:
  • Miss Liliana B Schumacher
  • Mr. Jiro Honda

Abstract

This paper discusses whether adopting the U.S. dollar as the sole legal tender could help Liberia, a postconflict economy, to boost growth and strengthen fiscal discipline. In view of the performance of exchange rate regimes in many countries and Liberia's own experience with dollarization, we conclude that Liberia should not adopt full dollarization for the following reasons: (i) the alleged benefits voiced by the proponents of dollarization, in terms of enhanced fiscal discipline and faster economic growth, are not supported by the empirical evidence; (ii) dollarization would increase the Liberian economy's vulnerability to external shocks and Liberia's social fragility; (iii) banks in fully dollarized economies face additional capitalization requirements that Liberian banks cannot meet at present; and (iv) dollarization would be costly in terms of real resources because of the loss of seigniorage.

Suggested Citation

  • Miss Liliana B Schumacher & Mr. Jiro Honda, 2006. "Adopting Full Dollarization in Postconflict Economies: Would the Gains Compensate for the Losses in Liberia?," IMF Working Papers 2006/082, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/082
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=18880
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mr. Aasim M. Husain & Mr. Ashoka Mody & Nienke Oomes & Mr. Robin Brooks & Mr. Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 2003/243, International Monetary Fund.
    2. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
    3. Alain Ize & Andrew Powell, 2003. "Prudential Responses to De Facto Dollarization," Business School Working Papers defactodollarization, Universidad Torcuato Di Tella.
    4. Rudi Dornbusch, 2001. "Fewer Monies, Better Monies," American Economic Review, American Economic Association, vol. 91(2), pages 238-242, May.
    5. Francois R. Velde & Marcelo Veracierto, 2000. "Dollarization in Argentina," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 24(Q I), pages 24-37.
    6. Reinhart, Carmen & Calvo, Guillermo, 1999. "Capital Flow Reversals,the Exchange Rate Debate,and Dollarization," MPRA Paper 8951, University Library of Munich, Germany.
    7. Ms. Anne Marie Gulde & Mr. David S. Hoelscher & Mr. Alain Ize & Mr. Dewitt D Marston & Mr. Gianni De Nicolo, 2004. "Financial Stability in Dollarized Economies," IMF Occasional Papers 2004/005, International Monetary Fund.
    8. Tornell, Aaron & Velasco, Andres, 2000. "Fixed versus flexible exchange rates: Which provides more fiscal discipline?," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 399-436, April.
    9. De Nicolo, Gianni & Honohan, Patrick & Ize, Alain, 2003. "Dollarization of the banking system : good or bad?," Policy Research Working Paper Series 3116, The World Bank.
    10. Eduardo Borensztein & Andrew Berg, 2000. "Full Dollarization; The Pros and Cons," IMF Economic Issues 24, International Monetary Fund.
    11. Mr. Alain Ize & Mr. Eric Parrado, 2002. "Dollarization, Monetary Policy, and the Pass-Through," IMF Working Papers 2002/188, International Monetary Fund.
    12. Michael D. Bordo, 1993. "The gold standard, Bretton Woods and other monetary regimes: a historical appraisal," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 123-191.
    13. Gerald Caprio & Michael Dooley & Danny Leipziger & Carl Walsh, 1996. "The lender of last resort function under a currency board: The case of Argentina," Open Economies Review, Springer, vol. 7(1), pages 625-650, March.
    14. Guillermo J. Vuletin, 2004. "Exchange Rate Regimes And Fiscal Performance. Do Fixed Exchange Rate Regimes Generate More Discipline Than Flexible Ones?," Econometric Society 2004 North American Winter Meetings 474, Econometric Society.
    15. Mr. Eduardo Borensztein & Mr. Andrew Berg, 2000. "The Pros and Cons of Full Dollarization," IMF Working Papers 2000/050, International Monetary Fund.
    16. Mr. Eduardo Borensztein & Mr. Andrew Berg, 2000. "Full Dollarization: The Pros and Cons," IMF Economic Issues 2000/004, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jeta Menkulasi & Lodewyk Erasmus & Jules Leichter, 2009. "Dedollarization in Liberia-Lessons From Cross-Country Experience," IMF Working Papers 2009/037, International Monetary Fund.
    2. Yinusa, Dauda Olalekan, 2008. "Between dollarization and exchange rate volatility: Nigeria's portfolio diversification option," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 811-826.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. A. G. Malliaris, 2005. "Global monetary instability: The role of the IMF, the EU and NAFTA," World Scientific Book Chapters, in: Economic Uncertainty, Instabilities And Asset Bubbles Selected Essays, chapter 20, pages 323-343, World Scientific Publishing Co. Pte. Ltd..
    2. Winkler, Adalbert, 2001. "On the need for an international lender of last resort: Lessons from domestic financial markets," W.E.P. - Würzburg Economic Papers 28, University of Würzburg, Department of Economics.
    3. Cordeiro, Jose Luis, 2008. "Monetary Systems in Developing Countries: An Unorthodox View," IDE Discussion Papers 154, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    4. Marcelin, Isaac & Mathur, Ike, 2016. "Financial sector development and dollarization in emerging economies," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 20-32.
    5. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 28(2), pages 37-61, October.
    6. Jérôme Blanc, 2014. ""Argentina o dolarización", ou quand la monnaie revient à la souveraineté," Post-Print halshs-01016336, HAL.
    7. Léonce Ndikumana, 2003. "Capital Flows, Capital Account Regimes, and Foreign Exchange Rate Regimes in Africa," Working Papers wp55, Political Economy Research Institute, University of Massachusetts at Amherst.
    8. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2014. "Addicted to Dollars," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 1-51, May.
    9. Hochreiter, Eduard & Siklos, Pierre L., 2002. "Alternative exchange-rate regimes: The options for Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 195-211, December.
    10. Kyriakos C. Neanidis & Christos S. Savva, 2006. "The Effects of Uncertainty on Currency Substitution and Inflation: Evidence from Emerging Economies," Economics Discussion Paper Series 0609, Economics, The University of Manchester.
    11. Mr. Andrew J Swiston, 2011. "Official Dollarization As a Monetary Regime: Its Effectson El Salvador," IMF Working Papers 2011/129, International Monetary Fund.
    12. Ferro, Gustavo, 2001. "De bancos centrales, juntas monetarias y dolarización [On central banks, currency boards and dollarization]," MPRA Paper 15354, University Library of Munich, Germany.
    13. Ibrahim D. Raheem & Kazeem B. Ajide, 2021. "The journey towards dollarization: the role of the tourism industry," Current Issues in Tourism, Taylor & Francis Journals, vol. 24(22), pages 3182-3188, November.
    14. Metin-Özcan, Kıvılcım & Us, Vuslat, 2007. "Dedollarization in Turkey after decades of dollarization: A myth or reality?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 385(1), pages 292-306.
    15. Shalendra Sharma, 2001. "Exchange rate regimes in post-crisis Asia: What explains the “hollowing of the middle”," Global Economic Review, Taylor & Francis Journals, vol. 30(4), pages 3-21.
    16. Sophie Chauvin, 2001. "Exit Options for Argentina with a Special Focus on Their Impact on External Trade," Working Papers 2001-07, CEPII research center.
    17. De la Cuba, Mauricio & Winkelried, Diego & Barenboin, Igor & Bertone, Louise & Jacobo, Alejandro & Loveday Laghi, James, 2004. "La Coordinación Macreconómica y la Cooperación Monetaria, Sus Costos, Beneficios y Aplicabilidad en Acuerdos Regionales de Integración," IDB Publications (Working Papers) 2180, Inter-American Development Bank.
    18. Ferro, Gustavo, 2001. "Currency Board: From Stabilization to Full Dollarization? The Argentine Experience," MPRA Paper 15353, University Library of Munich, Germany.
    19. Huberto M. Ennis, 2000. "Banking and the political support for dollarization," Working Paper 00-12, Federal Reserve Bank of Richmond.
    20. Mr. Thomas Philippon & Mr. Jeromin Zettelmeyer & Mr. Eduardo Borensztein, 2001. "Monetary Independence in Emerging Markets: Does the Exchange Rate Regime Make a Difference?," IMF Working Papers 2001/001, International Monetary Fund.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2006/082. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.