The abolition of Central Banking : the case of full dollarization

International audienceHard pegs and official dollarization gained support in the 1990s. The intent of this paper is to give an overview of these exchange rate strategies, as well as their consequences on monetary sovereignty and the banking system. We show that adoptions of currency boards and official (de jure) dollarization cannot be compared with British colonial currency boards or the official dollarization of Panama in 1903. Argentina (1990) and Ecuador’s (2000) choices were not motivated by a desire to reinforce integration with the key currency-issuing or imperial country, but rather to boost monetary credibility, economic openness, and financial liberalization. In this sense, recent experiences of dollarization and currency boards have been influenced by New Classical Macroeconomics, and they have been instruments of the economic policies prescribed by the Washington Consensus. Using the endogenous money hypothesis, we argue that these monetary schemes imply a loss of monetary sovereignty, as well as a fragility of the banking system without a strong integration with the United States. The paper also presents theoretical foundations of recent monetary innovations set up by the central bank to eliminate the constraints of dollarization