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Dallas Fed's McTeer backs idea DALLAS

Speaking a week after Ecuador's Congress voted to adopt the dollar as the nation's main currency, McTeer said the Fed had no official position on dollarization because the decision to officially support it should be made by the U.S. Treasury.

Argentina has pegged its peso one-to-one to the dollar since 1991 and former President Carlos Menem last year proposed adopting the dollar as the official currency. But the new three-month-old govenrment of President Fernando de la Rua says it wants to keep the peso pegged to the dollar under the current system.

Other nations where dollarization has been discussed include Mexico, Guatemala and Costa Rica, although none of those countries is currently considering a proposal to abandon its currency and adopt the dollar.

While the Dallas Fed will not actively promote dollarization, it will provide passive support in the form of research and conferences, McTeer said.

Dollarization would immediately and drastically benefit those countries that need it the most, he said.

Switching to the dollar in countries with high inflation would bring greater price stability and lower interest rates significantly, he added.