Dollarization in Argentina
In January 1999, Argentine president Carlos Saúl Menem announced his intention of “dollarizing” Argentina’s economy, i.e., adopting the U.S. dollar as Argentina’s sole currency. His intent is to protect the Argentine economy from speculative attacks on its currency, such as those observed in recent international financial crises. There are two ways to implement dollarization. One is for Argentina to proceed on its own; the other is for Argentina to seek a formal arrangement with the U.S. In this article, the author discusses the possible costs and benefits of dollarization. He shows that, while it is feasible for Argentina to act unilaterally, there are strong incentives to seek a bilateral arrangement.