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Dollarization and Free Choice in Currency
Originally published in SSRN
The author describes and defends the dollarization of Ecuador in 1999-2000 as a bottom-up phenomenon, an expression of consumer sovereignty by money-users, to which the government finally conceded. He suggests legalizing private issue of paper and electronic dollar-denominated currencies as a way to neutralize the seigniorage and national-pride objections to dollarization.
The author describes and defends the dollarization of Ecuador in 1999-2000 as a bottom-up phenomenon, an expression of consumer sovereignty by money-users, to which the government finally conceded. From that perspective, he rebuts common top-down (social planner) arguments against dollarization, and criticizes the Ecuadorian government’s current plans to introduce a government-issued cellphone currency. He suggests legalizing private issue of paper and electronic dollar-denominated currencies as a way to neutralize the seigniorage and national-pride objections to dollarization.
Note: This is a written version of his keynote address to conferences on "Quince Años de la Dolarización: Análisis y Perspectivas" [Fifteen Years of Dollarization: Analysis and Perspectives] held in Quito, Ecuador, 12 November 2014, and Guayaquil, Ecuador, 13 November 2014.
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