Is full dollarization advisable in a partially dollarized economy?

This study examines the merits of adopting a full dollarization regime in Peru, in contrast to its current state of partial dollarization. The relevance of this analysis lies in the economic context of Latin America and in the lessons learned from experiences in other countries, such as Argentina and Panama. The study evaluates the impact of dollarization on monetary policy, exchange rate risk, fiscal discipline, and financial depth. To this end, a comparative approach is used, and data on Peru’s economic performance between 1990 and 1999 are analyzed. The results suggest that the elimination of exchange rate risk does not necessarily reduce country risk, since the latter is more closely related to macroeconomic soundness and institutions. In addition, the study highlights that Peru has made significant progress in its independent monetary policy, which enables it to manage crises and maintain effective inflation control. The policy implications suggest that the country could benefit from continuing to consolidate an active monetary policy rather than opting for full dollarization, which would limit its ability to respond to economic shocks. (Abstract and audio: Department of Economic Publications)