by Ria Saxena
This paper examines the historical impact that different systems of dollarization have had on emerging economies in order to provide suggestions for future economic policy implementations. Dollarization remains a highly relevant field as emerging markets today gaining more purchasing power parity compared to advanced economies adopt the measure for sustained currency growth; this has led to success in some cases, such as El Salvador, and disaster in others, such as Argentina. Within modern research literature, dollarization has been discussed time and time again due to its acute effects in individual emerging market cases. However, there has been a lack o f research comparing the benefits of dollarization and partial dollarization within these emerging economies. As such, through the course of the research paper we seek to define two separate categories of dollarization and examine different monetary policies used by emerging markets while comparing their varying levels of success. Through analyzing historical economic developments and economic growth while contrasting systems of dollarization and monetary policy, we can conclude that both partial dollarization and full dollarization can lead to economic gains depending on the current and predicted GDP growth of the country in question. Emerging economies with a positive economic outlook can institute a full dollarization system given they have enough sovereign funds. On the other hand, emerging economies facing economic stability should instead facilitate partial dollarization and allow an influx of American dollars into the economy without full convertibility or pegging to the domestic currency.
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