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Winkler, Adalbert --- "Lessons from sustained cases official dollarization/euroization" [2005] ELECD 382; in Liebscher, Klaus; Christl, Josef; Mooslechner, Peter; Ritzberger-Grünwald, Doris (eds), "European Economic Integration and South-East Europe" (Edward Elgar Publishing, 2005)

Book Title: European Economic Integration and South-East Europe

Editor(s): Liebscher, Klaus; Christl, Josef; Mooslechner, Peter; Ritzberger-Grünwald, Doris

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781845425173

Section: Chapter 7

Section Title: Lessons from sustained cases official dollarization/euroization

Author(s): Winkler, Adalbert

Number of pages: 20

Extract:

7. Lessons from sustained cases of
official dollarization/euroization*
Adalbert Winkler

1. INTRODUCTION

The official and unilateral adoption of a foreign currency, commonly
known as dollarization or euroization,1 has its place in the world economy's
history, but was out of fashion for a long time ­ until Kosovo and
Montenegro adopted the euro, and Ecuador, El Salvador and East Timor
the US dollar as their currency. More important, international financial
institutions and academic economists re-considered dollarization/euroiza-
tion as a possible policy option when the crisis of many emerging market
economies during the second half of the 1990s underlined the difficulties of
managing exchange rates in a world of open capital accounts (Calvo, 1999
and 2001).2 However, the costs and benefits of unilaterally adopting another
country's currency have mainly been explored on theoretical grounds (Berg
and Borensztein, 2000). Empirical analysis has been largely confined to the
case of Panama (Edwards, 2001; Goldfajn and Olivares, 2002).
This chapter sheds light on the experience of countries and territories
that have officially and unilaterally used a foreign currency for a long time.3
In particular, it aims at answering the question concerning whether any
lessons can be drawn from their experience for countries considering to uni-
laterally adopt another country's currency. The chapter is structured as
follows. Section 2 discusses the pros and cons of such a move,4 with a special
focus on South-East European countries. Based on the criteria stressed by
the bipolar view of ...