US Policy on Dollarisation: A Political Analysis

Dollarisation has become a topic of intense debate throughout Latin America, raising the prospect of a vast new currency bloc in the western hemisphere - a potentially pivotal geopolitical event. What policy responses can be expected from the United States? An assessment of potential benefits and costs, both economic and political, suggests that there is no clear presumption regarding US interest, leaving wide latitude for policy discretion. Little change of Washington's current policy of passive neutrality can be expected in the foreseeable future. The only exception would be the possibility of a serious challenge to the dollar's global pre-eminence by Europe's new euro, which could trigger a competitive response from Washington.