Time for dollarisation?

THE EDITOR: The Hyatt US dollar issue has possibly brought the concept of dollarisation (the use by a country of the US dollar as its own currency) to the fore. I would like a few economists to comment on the pros and cons of dollarising the economy.

One can see the stabilising economic effect it has had on Venezuela and Zimbabwe, among others: products are back on shelves, the population isn't worried about the declining purchasing power of a local currency, and there's no more hoarding of US dollars by those with connections.

(Note that it hasn't helped other Venezuelan issues due to political uncertainties, and investment does not follow uncertainty. TT thankfully has a stable democracy along with a strong history of peaceful transfer of power.)

Dollarisation also lowers our foreign transaction costs, potentially reduces our foreign reserves as we no longer need to prop up an overvalued dollar, and the black market will cease to exist.

In addition, it allows equal access to US dollars which contrasts to the situation now where the large conglomerates and big businesses dominate each sector by usurping all of the available forex due to their close relationships with the commercial banks (read large loans, interconnected board members, and common large stakeholders).

Access to forex is more than just for importing and selling – the lack of availability also stymies upstart business, particularly in the service sector, as where would they get foreign exchange for that next great idea?

Our innovation is being stifled currently, as many great enterprises worldwide start in a garage somewhere but locally would never get much forex to grow under the current system. Everything can't be done on the decreasing limits of one's credit card.

Besides national pride, what are the advantages of our own currency? I'd say with dollarisation: a stronger economy and greater prosperity for all will outweigh this sentiment and, furthermore, if we have never exercised the floating mechanism in decades in favour of an essentially pegged currency, nor have we been effective at using our TT dollar interest rate to really attract TT-dollar investments, then why not make the switch?

Additionally, it should be noted that the ever present possibility that there will be a devaluation does not engender confidence in keeping savings in TT dollars. Our finance minister has insisted that this will not happen, but the government's track record for backtracking (Petrotrin closure and property tax come to mind) and the chance of an IMF intervention make the likelihood of such devaluation very real, especially in this case where the blame could be shifted to the institution as part of its fiscal requirements.

I ask this question in parting: If given the choice to accept US dollars or TT dollars for a modest-size transaction, which would you choose? If the answer is the former by a wide margin, as I suspect it is, then what national pride is there for a currency that is always second choice?

C ALEXANDER

Port of Spain