Dollarization Cases in Latin America

in LeoFinance4 months ago

According to an article published in 2018 by the newspaper ABC de Spain, the Venezuelan economy had contracted 50% since 2013, when Nicolas Maduro assumed the presidency.

A chain of errors in the management of economic policies added to the destruction of the main national oil company (PDVSA), made Venezuela the poorest country in Latin America, which has led to a de facto dollarization as a way of preserve purchasing power since the national currency has experienced a brutal devaluation due to an Accumulated Inflation that exceeds 10,000,000%.

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The IMF predicts that Venezuela will continue in recession throughout the horizon of its projections, registering an annual fall in GDP of 1.5% in 2023.


Dollarization in Latin America

Other cases of situations of economic collapse have occurred in Latin American countries in different periods of history, which have pressured governments to adopt foreign currency due to the pulverization of the value of their national currencies.

Ecuador did so in January 2000 and El Salvador in January 2001.

Nations such as Cuba and Argentina, despite facing adverse economic situations, have not yet considered dollarization as a real alternative. We must say that they have not done it due to ideological decisions and in the case of Venezuela, dollarization is occurring informally, although the government does nothing to stop it.

We could mention the case of Panama, in Central America, but this was a situation with other roots.
The construction of the Panama Canal by the United States, which began in 1881 and its subsequent inauguration on August 15, 1914, included a series of economic agreements that contemplated the adoption of the dollar.

In Ecuador inflation stood at 76.5% of GDP in 1989 and 96.1% in 2000. In that last year, the national currency, the sucre, was devalued by 250% and a score of banks and other financial entities went bankrupt. On January 9, 2000, Dollarization was formalized.
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In El Salvador inflation reached 32% in 1986. In 1992 the country chose to establish a fixed exchange rate for its currency, the colón. However, with the effects of the global financial crisis at the end of the 20th century, the government of President Francisco Flores preferred to adopt the dollar. El Salvador has been officially dollarized since January 1, 2001.
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Conclusion

If we observe the behavior of the economies in the Latin American countries where the Unidence State Dollar was adopted as the official currency, perhaps we could conclude that there is a recovery as a result of these changes.

Although these decisions were taken in moments of extreme crisis, we can assume that if these measures had not been implemented, perhaps the living conditions of its citizens would not have improved, as in fact happened.

If we compare the living conditions and purchasing power of the citizens of these countries, with other economies that, despite being suffering economic crisis, have not adopted the State Uncertainty Dollar, we will be able to notice a great difference where in dollarized countries the level of welfare Is superior.

Migratory phenomena function as a great indicator of these conditions.

In the 1940s, we could see migrants arriving in Venezuela from nations with economies affected by civil wars and economic debacles, such as the cases of Spain and Italy.

In the 80s, Venezuela received migrants from countries throughout the Southern Cone.

Today, Venezuelans make a presence in many countries of the world, the product of a beastly diaspora.

Perhaps it is beneficial for Venezuela, the adoption the dollar.


@juanmolina


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The dollar is valuable, one of the most valuable fiat currencies in the world... The people should adopt the dollar, or other competitive currencies (including crypto) that are backed by nations that support liberty.

If you live under an authoritarian government that creates its own currency, the best way to limit its power is by using a different currency (or holding physical assets, like Gold). Creating local sustainable markets will ensure that liberty thrives!

All these theoretical concepts that you have mentioned, could really have positive effects in any nation where economic policies are handled responsibly.
Sadly, this does not happen in Venezuela.

Thank you for your valuable comment.