[A-List] More IMF Snake Oil

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

   An IMF Paper


   An Evaluation of Monetary Regime Options for Latin America

<http://ideas.repec.org/p/chb/bcchwp/178.html#author>

Andrew Berg
Eduardo Borensztein
Paolo Mauro

Abstract

Over the past decade, most Latin American countries have moved toward
either extreme of floating rates or dollarization, in line with
worldwide trends. In this paper, we evaluate the wisdom of those
decisions and the choice of monetary regime more generally. We first
evaluate the desirability of adopting a common currency in the region.
We find that, under present circumstances, the costs of a common
currency are likely to outweigh its benefits, as these countries do not
trade much with each other and, moreover, they face diverse economic
shocks, their business cycles are not coordinated, and they are affected
by common shocks to sentiment in international financial markets only to
the same extent than the average pair of emerging markets. We next
consider the unilateral dollarization option. For most Latin American
countries, this would be desirable only when there are strong links to
the US economy, the credibility of the monetary authorities is
irreversibly lost, and there is a keen demand for dollar-denominated
financial assets. Finally, we review the relatively short experience of
floating exchange regimes in Latin America and find that, despite the
external constraints, floating countries have retained sufficient
flexibility to use monetary policy for domestic ends in response to
important shocks. End of Abstract.

Comment by Henry C.K. Liu:

The reason why at present Latin American countries do not trade much
with each other is in large part due to the absence of a common
currency. Thus to present the lack of trade as a reason not to have a
common currency is a circular argument.  This is typical IMF position to
prevent any possible cahllenge to the dollar.

As for dollarization, the disastrous experience of Argentina says it
all.  What Latin America needs is currency control which has been
successfully used by Malaysia during the Asian Financial Crisis of 1997.

Henry C.K. Liu