Cases of Dollarization in Latin America

2개월 전

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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Hello @juanmolina
The world is dollarized, we might say. But those countries with weak economies that do not assume the dollar as their currency, and are in crisis is a big problem for society in general, because inflation does not stop, and unfortunately the dollar is the one used as the reference currency for changes.

I also believe that dollarization in Venezuela could be a relief, but, because of absurd policies and cheap ideology they will not.

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Dollarization is an emergency measure for weak economies.

awesome post!

An interesting thing to look is how the situation got there and in most cases in is based on human corruption and greed! Also, a quick question, what's the state of the economy in Venezuela in terms of poor and rich people. For example, there is a middle class or we see quite the big income difference and classes like only poor and rich? regarding the criminality levels, what's the case?

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Greetings, friend @filotasriza3.

This is a process that has been going on for 23 years.

In Venezuela, the middle class disappeared. We are just: poor and rich.
Unbelievably, the rich are extremely rich, grossly rich. They are all related to the government.

We, the poor, represent 95% of the population

Thanks for the comment.

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ohh what a tough situation hang in there!

Greetings @juanmolina for more political ideal that you can have, it is time to think about the society, as well expressed by @josevas217 in his commentary, the world is dollarized, the case of Venezuela is extraordinary since in our country and more in the border states any currency of exchange works except the national one, that takes us to think about how devaluated the currency is.

Therefore, many of the problems of our country lie in the fact that we walk by an informal dollarization, but where we receive a salary in average of one (1) dollar. Thank you for your valuable contribution.

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The reality in Venezuela is totally sad.
God bless us.

Dear friend, dollarization will always improve the economy. The first thing it does is end corruption and theft from the central banks and governments to citizens.

A clear example would be to dollarize, the inflationary spiral should not continue since most products and services would stabilize

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Theoretically, dollarization should improve the economy.

In fact, all the countries that have dollarized have improved their economy. But this is an emergency measure: when a nation decides to dollarize, it is because its economy and national currency have lost all value. Ideally, a sovereign nation maintains the integrity of its national currency.

The problem in Venezuela is the government's ideology, I don't think they intend to officially adopt the dollar as their currency, even though the economy will continue to demand it, so maybe they will only invent some measure to legitimize operations with this currency in a certain way .

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There are too many factors involved.
They are even turning the entire Venezuelan financial system into a great Dirty Money Legitimation Machine.

They have too many dollars from illegal activities that must be given legal tender.

Hello @juanmolina, I also think that a "de facto" dollarization is necessary in Venezuela but there is an aspect that does not have a correction pattern and the socio-economic tendency of the "Venezuelan" to devalue the currency that he has in his hands, for example, in my city we are being now seriously affected by a figure of "devaluation in dollars", where now it is necessary to project "without economic indicators" considering an increase in prices in items and services that hypothetically should maintain their price in dollars.

"The psychosocial disorder in economic matters that we are living in Venezuela" will be very difficult to correct and correct in the short term and that is worrying.

Very good this review.

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Hi, appreciated @tocho2.

Actually, the term "devaluation in dollars" does not exist. At least not in our country. Perhaps the only country where it could exist would be in the US and that is not the fact.
In Venezuela what exists is immense price speculation, in addition to all the "surcharges" in the costs that the imported merchandise suffers when passing through the customs of "Puerto Cabello".

By applying tabulated formulas of universal use, we obtain the economic indicators, these are very important results that must be provided periodically by the Central Bank, which works like this in almost all the countries of the world, but in Venezuela, these figures are almost not published, furthermore, the results do not reflect the reality of the economy.

All this disorder and lack of professionalism in the management of the economy, added to a policy of ideological indoctrination has caused the psychosocial disaster that you mention.

Thanks for your great comment.