Presented Before a Joint Hearing of the Subcommittees on Economic Policy and International Trade and Finance

I will discuss the motivation and potential benefits of full dollarization, namely, abandoning domestic currency (identified with the peso) and adopting a foreign currency (identified with the U.S. dollar), with special reference to emerging-market economies. I will argue, first, that full dollarization is especially advantageous for countries with large dollar debts, and, second, that in these economies standard criticisms against full dollarization are largely unwarranted. (For a more extensive discussion of these issues, see Calvo (1999 b)). Dollar debt (liability dollarization) is an important, and not fully appreciated, phenomenon. A recent IMF study (IMF(1999)) shows that there are a number of countries wher