Dollarization diplomacy: US policy towards Latin America coming full circle?

Abstract

Beginning in 1999, US policymakers suddenly began to debate the idea of encouraging Latin American countries to adopt the US dollar as their domestic currency. In this article, I show that the US debate concerning the pros and cons of ‘dollarization diplomacy’ has two interesting historical precedents that help us understand the politics of US policymaking in this area. The first took place between 1900 and 1915 when the US also showed considerable interest in the idea of promoting the use of dollar within many Latin American countries. Then, in the 1940s and 1950s, US policymakers did an about-face and encouraged those same countries to ‘de-dollarize’. To date, these dramatic changes in this aspect of US-Latin American monetary relations in the twentieth century have received very little scholarly attention. But I argue that a study of them is useful in identifying what influences US foreign economic policy towards dollarization abroad today. I show how US policy, both in the past and present, has been influenced by: prevalent macroeconomic ideologies, domestic economic interests, and geopolitical concerns.

Keywords:

• Dollarization
• Currency Bloc
• Monetary Union
• Monetary Relations
• Us Foreign Policy
• Latin America
• Regionalism