Don't blame dollar for El Salvador's inflation, says former finance minister

Manuel Hinds, the former finance minister of El Salvador, writes that many people blame dollarization for the country's inflation – quite incorrectly.

Wednesday, July 2, 2008

These people point out that prices were lower before the 2001 dollarization than they are now. But they seem to assume that prices would have remained frozen in time if they had remained in colons.
That reasoning, however, conveniently forgets the whole history of the colon and the behavior of other Latin American currencies since 2001. Inflation would have been worse without dollarization, Hinds argues.

More on this topic

Why It Would Be Impossible to de-Dollarize El Salvador

June 2012

An Argentine expert predicts that if the Salvadoran economy abandons the dollar it would trigger serious social upheaval ... and Argentines know all about that...

An article in Elsalvador.com by Eduardo Levy Yeyati, former official of the International Monetary Fund (IMF) and the World Bank, and "who has conducted research on the causes and consequences of dollarization, the behavior of markets in times of crisis and of monetary and exchange rate regimes, said a freeze on bank withdrawals in the country would be accompanied by a pronounced economic downturn, which would be associated with an imbalance in the payment system, ie, lack of liquidity. "

Salvadoran Economy Will Remain Dollarized

April 2010

This was stated by Carlos Acevedo, president of the Central Bank, in response to a proposal to return to the Salvadoran colón.

Acevedo added that President Mauricio Funes committed to keeping the country dollarized in his presidential campaign, reaffirming it many times afterwards.

El Salvador to Stay Dollarized

May 2012

Salvadoran President Mauricio Funes has rejected assertions of Vice President Salvador Sanchez about the need to return to a national currency.

President Mauricio Funes said he will not reverse the dollarization of the Salvadoran economy.

Funes, who acknowledged that dollarization implemented in the country has created advantages and disadvantages, said that to reverse the process started in 2011 "would create uncertainty", according to Elsalvador.com.

Costa Rica Considers Official Dollarization

June 2013

The Salvadoran economist Manuel Hinds discussed in Costa Rica the pros and cons of dollarization, using the example of El Salvador and Panama.

The Elsalvador.com reported that "many government economists advocate keeping their local currency because they believe that inflation will remain low, but Hinds explained that the opposite happens.

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