On dollarization
Last year in Costa Rica inflation was almost 15%, the largest percentage of that due devaluation: a dollar was worth c457.58 when the year started and c495.65 when it ended. There’s an almost 10% drop just because we’re using a currency that allows our central bank to print out new Monopoly bills. Recent studies of inflation in Central America have shown that the two countries with the lowest inflation are Panamá and El Salvador, both which are dollarized, even though both have much higher internal expenses than Costa Rica (like supporting an army) and a much more complicated recent history (internal strife, wars with neighboring countries). Finally, the excuse that dollarization would make us directly dependent on the U.S. economy is absolutely moot – we are already dependent on it: some of our Central Bank reserves are in dollars, the United States is a huge commercial partner, and we bring in about half our imports from there.
As you can imagine, I’m a big proponent of dollarization – but if the government doesn’t want to do it, and the vast majority of people are content the way things are, that’s their problem. It’s always good to read alternate opinions, however, and – once again via Marginal Revolution – I’ve found an article discussing if Argentina should have dollarized back in 2001.
Enjoy.