What seigniorage revenue does a country lose by dollarizing?

Seigniorage = money supply growth x GDP. A country growing nominal money supply by 5% on a USD 50 billion monetary base loses approximately USD 2.5 billion annually in seigniorage to the US Federal Reserve. Ecuador lost an estimated 1–2% of GDP annually in seigniorage upon dollarizing in 2000.

Can a dollarized country have monetary policy at all?

Dollarized countries cannot set interest rates independently but retain limited fiscal tools. They depend entirely on US monetary policy, which may be misaligned with domestic cycle (Panama, Ecuador, El Salvador). El Salvador's adoption of Bitcoin as legal tender alongside USD in 2021 was an experiment in alternative monetary flexibility with limited take-up.

Dollarization Benefits vs Costs Analysis

Evaluate full dollarization trade-offs: elimination of exchange rate risk and currency crises against loss of seigniorage revenue, inability to use monetary policy, and lender-of-last-resort constraints.

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Frequently Asked Questions

What seigniorage revenue does a country lose by dollarizing?

Can a dollarized country have monetary policy at all?