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In the aftermath of global economic crises in Asia and Russia to threats of default by Latin American nations there is a pursuit for better monetary arrangements that are more crisis proof At the root of many of these problems has been policy resulting in problems such as hyperinflation Gradually monetary policy worldwide has progressed from fixed rates to flexible rates with the intention of developing a strategy focused on inflation targeting Recently however there has even been debate over the alternative of abolishing exchange rates all together This paper begins with an introduction of dollarization forms in which it exists and reviews some general benefits and costs to the nations adopting this policy In the second half I address the growing trends of dollarization in Latin America which have shown positive results in short term but conclude with an evaluation of possible long term effects on Latin American and the United States The ascent of dollarization from being a relatively neglected issue to the role of powerful economic remedy is mysterious and intriguing Dollarization is the process in which a country adopts in whole or in part the US dollar as its official currency Currently Panama is the only country in the world that has fully dollarized and has been so since 1904 Likewise limited dollarization occurs when US dollars circulate alongside a countrys national currency This phenomenon referred to as unofficial dollarization became noticeable primarily in the 1980s in some countries experiencing rapid inflation Chiefly in Latin America countries residents learned to protect themselves against the loss of purchasing power of their national currencies by switching to the dollar as inflation rates in Mexico Israel and Peru reaching into the triple digits Despite the growing interest in dollarization very little was done in terms of adopting this policy on a broad scale until the 1990s with a sequence of crises in the emerging markets marked by the
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