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Costa Rica Considers Moving Over to the Dollar

Article Summary:

Economist and former Minister of Finance, Manuel Hinds, spoke in Costa Rica about the myths and realities of dollarization, urging the country to embrace the U.S. dollar as its national currency to avoid the pitfalls of using its national currency.

Photo Credit: Well Saved

Original Article Text From el Salvador.com via Google Translate :

The example of El Salvador and its results

Twelve years after it was applied in this country, economist and promoter of the measure, Manuel Enrique Hinds, Costa Ricans exposed the myths about dollarization and its results.

In his presentation Hinds explained the reasons why governments do not encourage dollarization its economy, the expectations are maintained around a local currency and reality when it is already dollarized.

Many economists advocate government kept under your local currency because they believe that inflation will remain low, but Hinds explained that the opposite happens. In the region, El Salvador, and Panama, which are dollarized, are those with the lowest inflation rates while countries like Argentina and Venezuela have an inflation rate of more than two digits (25 and 10% respectively) while last year, inflation in El Salvador was only 0.8%.

The expectation in the financial sector is that by keeping the local currency interest rates are lower, but the International Monetary Fund data indicate that they are higher in countries with monetary policy.

Honduras had a real lending rate of 11.3% in February of this year, while in El Salvador was just 3.8%.

“Interest rates of a country’s own currency are more variable,” said the economist.

The abundant credit and avoid financial crises are other arguments that governments have to not change its currency by international, but Hinds said that myth than reality because in the Salvadoran case, although it depends on the U.S. economy and its monetary policy has been better spared the crisis than other countries for their trading conditions have left most affected.

Hinds explained that countries like Brazil and Argentina, whose income depends on sales of raw materials, financial crises have had on their exchange rate policies.

In Ecuador, the bank run (taking money out of the banks) stopped when its economy was dollarized in 2000.

Another of the expectations of many governments is that devaluations help exports, but Hinds stated that the opposite happens. The most devalue its currency are the least exported as companies on rising inflation and rising transaction costs and also the costs are no longer competitive in the global world.

Link to Original Article:

From El Salvador.com

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