Most central banks do one thing well: they produce monetary mischief..

Says Prof Steve Hanke in this post. More so in case of emerging economies.

So what is the solution? Well, give the mon pol function  to a more responsible country. One option is dollarise. Panama is a good example:

Most central banks do one thing well: they produce monetary mischief. Indeed, for most emerging market countries, a central bank is a recipe for disaster.

The solution: replace domestic currencies with sound foreign currencies. Panama is a prime example of this type of switch. Panama adopted the U.S. dollar as its official currency in 1904. It is one of the best-performing countries in Latin America (see the accompanying table). In 2014, economic growth in Latin America and the Caribbean was a measly 0.8 percent. In contrast, Panama’s growth rate was 6.2 percent. Not surprisingly, it was the only country in Latin America to have realized an increase in the number of greenfield FDI projects

Panama does pretty well on Prof Hanke’s Misery index as well.

Now Panama is a pretty small country and a special case. Difficult to apply the same to other economies.

Infact bigger problem is why dollarise? Given the state of US economy and above all of Federal Reserve, one is not sure whether one can dollarise at all. Same with Eurosie, Poundise or Yenise. At best you can say  given the options, dollarise is less worse than available options.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: