Home - Yahoo! - Help

[ Business | US Market | By Industry | IPO | AP | S&P | International | PRNews | BizWire | CCN ]

US Senator sees domestic boon if others adopt dollar

BUENOS AIRES, Mar 1 (Reuters) - The United States will benefit if more emerging markets follow Ecuador's lead and adopt the dollar as their national currency, a leading U.S. senator said Wednesday.

``For the United States, dollarization by these countries would mean faster-growing and more stable export markets, less currency risk in international trade and investment and less of a need to bail out foreign central banks,'' said Mack, Chairman of the Joint Economic Committee.

The Florida Republican introduced legislation last November aimed at encouraging more countries to use the dollar.

``For emerging markets, the advantages of dollarization include less inflation, more fiscal discipline, lower interest rates, more investment and faster economic growth,'' Mack said in a statement sent to Reuters.

Mack's International Monetary Stability act would allow the U.S. Treasury to encourage countries to adopt the dollar by offering a rebate of 85 percent of the resulting increase in U.S. seignorage.

Seignorage is the income a country receives when the value of its currency exceeds the cost of producing it. Countries normally make a profit from their national currency but a dollarizing country would be faced with the expense of buying dollars to swap for its national currency.

The bill would also make clear that the United States would not become the lender of last resort, or set monetary policy for the dollarizing country.

The Congress of Ecuador voted to adopt the dollar on Tuesday night after the country of 12 million people watched its currency the sucre lose two-thirds of its value last year when the government was forced to default on part of its $13 billion in foreign debt.

Adopting the dollar, or ``dollarization,'' is a fashionable if controversial remedy touted by many economists for curing the ills of countries as different in size, population and culture as Brazil, Argentina and Mexico.

Panama adopted the dollar in 1904, but the dollar tide really began to move in 1991, when Argentina, Latin America's third-largest economy pegged its peso at one dollar.

But Brazil's sharp devaluation of its real at the beginning of last year led its neighbor Argentina to study the possibility of going one step further and dropping its peso altogether. Mexico started thinking about the same thing, although its government now says it is not interested.