Convertibility and Dollarization: Economic Policy Tools

Abstract

One of the main problems that South American countries continuously face is devaluation and inflation, which are distorted due to the incidence of internal and external economic, political, fiscal and social crises. Hence the need for governments to determine appropriate policies that control these imbalances with the least impact on the quality of life of society. Thus, Argentina in 1991 adopted convertibility and Ecuador in 2000 dollarization as economic policy tools to control the growing exchange rate and inflation. For this reason, this article makes a comparative analysis between convertibility and dollarization to determine their advantages and disadvantages and the direct or indirect impact of each on the Gross Domestic Product, inflation and unemployment in the period 1985 to 2022. The study is qualitative because it is based on the analysis of theoretical and empirical documents compiled through exploratory research and, quantitative because it is based on analysis and treatment of World Bank indicators. The results reveal that there is a strong and direct correlation between the inflation rates generated in the convertibility period and the inflation rates generated in the dollarization period. Finally, it is concluded that dollarization is the best shield for the monetary management of a country, since it avoids the printing of unbacked banknotes that cause inflation and devaluation and protects the quality of life of the population.