We’ve seen this movie before. Someone shows up with a magic plan claiming it will create growth and abundance. We’ve watched many of these ‘winning horses’ trotting down Fantasy Street only to never be seen again: offshore gas and oil, Guandong Zhenrong, space rockets, Formula 1 Grand Prix and so on. From time to time somebody will recycle an old idea, a bad old idea as cure-all: dollarization.
Dollarization means replacing the Netherlands Antillean Guilder (ANG) with the US dollar (USD) as legal tender. This could lower transaction costs and interest rates benefitting international trade and foreign investments. However, some of our Central Bank’s (CBCS) tasks especially the lender of last resort for local banks facing financial stress, will disappear. The CBCS will also have to buy back the ANG for which large quantity of USD is needed plus reserves to help support economic shocks. Dollarization will eliminate seigniorage earnings, which is the income of the CBCS from issuing the ANG minus the cost of printing, leading to less income to the government.
In 1985, facing economic downturn, dollarization was also presented as a wundermittel which would force politicians to make structural changes. Not once, but twice the International Monetary Fund cautioned against dollarization as did the University of the Netherlands Antilles. In 2008 the Central Bank again proposed rapid dollarization. This, just when the same Central Bank declared earlier it favored Curaçao becoming a EU Ultra-peripheral region (UPG). By the way, all UPGs use the Euro. Dollarization disappeared from the headlines to reappear this week.
This begs the question: if dollarization is a cure-all, why hasn’t the majority of developing nations dollarized because of crises instead of only a handful of them like Ecuador, El Salvador and Zimbabwe. Studies have yet to conclude if it was a wise choice. Interestingly, Ecuador recently forced its banks and financial institutions to adopt a new electronic currency in an apparent move to de-dollarize. Dollarization an sich doesn’t bring about changes such as modernizing the economic structures, curtailing spending and raising productivity. Political action, does.
Instead of taking our own responsibility to tackle structural shortcomings, we prefer outside forces such as ‘aanwijzing’ and US dollars to force us to do what we know only too well we should be doing. Why? This is not the autonomy our forefathers fought for.
Finally, I think the CBCS should have other priorities at this moment such as redesigning itself after a series of scandals, finally replacing the ANG which it promised to do short after 2010 and tackling our dysfunctional monetary union.
Alex David Rosaria (50) is from Curaçao and has a MBA from the University of Iowa. He is a former Member of Parliament, Minister of Economic Affairs, State Secretary of Finance and UN Implementation Officer in Africa and Central America.
