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Adopting Full Dollarization in Postconflict Economies: Would the Gains Compensate for the Losses in Liberia?
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Author/Editor: |
Honda, Jiro | Schumacher, Liliana |
| Authorized for Distribution: |
March 1, 2006 |
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Electronic Access: |
Full Text in PDF format. (PDF file size is 499KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s)
and do not necessarily represent those of the IMF or IMF policy.
Working Papers describe research in progress by the author(s) and are
published to elicit comments and to further debate. |
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Summary:
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.
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Series: |
Working Paper No. 06/82 |
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Published: |
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March 1, 2006 |
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Format: |
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Paper |
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Stock No: |
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WPIEA2006082 |
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Pages: |
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25 |
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Price: |
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US$15.00
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