Challenges and Prospects
Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 6: De jure dollarization and euroization
Eduardo Levy Yeyati A discussion of de jure dollarization and euroization presumes the presence of two diﬀerent phenomena. Typically, de jure dollarization refers to the oﬃcial adoption of a foreign currency – any foreign currency – in lieu of the national currency.1 It follows that the standard deﬁnition of dollarization also comprises the unilateral adoption of the euro as exclusive – or parallel – legal tender. What do we talk about, then, when we talk about euroization? Taking advantage of the absence of a standard deﬁnition of the term, I propose to understand euroization, more speciﬁcally, as monetary integration with the euro area. As I will argue below, this entails important diﬀerences with dollarization – as well as with monetary unions in general. But in order to frame the discussion, it is useful to revisit ﬁrst the traditional dollarization debate. This debate was reheated by the stream of emerging market crises in the late 1990s. The crises revealed the vulnerability of conventional pegs – which had regained popularity in the 1980s and early 1990s as a deﬂationary device – to self-fulﬁlling runs and speculative attacks, narrowing down the exchange rate regime debate to a credibility issue: unless a credible commitment device could not be engineered, governments would better avoid any commitment to a ﬁxed exchange rate at all. For a while, the so-called hard pegs were proposed as a partial solution to this dilemma. In a nutshell, this ‘bipolar view’ argued that the only alternative to ﬂoating was a...
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