Dollarized Economies in Latin America. An Inflationary Analysis of Pre, During and Post Pandemic

TL;DR

This paper investigates whether dollarization in Latin America effectively shields economies from inflation and disruptions during the pandemic, finding it helps with inflation but not fully with economic performance or poverty.

Contribution

It provides an empirical analysis of dollarization's role in Latin America during the pandemic, highlighting its limited protective effects and emphasizing the importance of domestic policies.

Findings

Dollarization reduces inflation effectively.

It does not fully protect against economic downturns.

Domestic policies significantly influence economic resilience.

Abstract

Given the hyperinflation that most of the Latin American countries suffered in the 90 and their decision towards adopting dollarization and in most cases keeping their own currency, this paper analyzes the effectiveness of dollarization as a protective mechanism against economic disruptions in Latin American countries. It assesses the context that led Latin American dollarized countries to dollarize and analyzes CPI, GDP, and the poverty rates pre, during, and postpandemic in Latin American countries, considering those that are dollarized and those that are not, and evaluating its relation to the US. Interviews were carried out with experts in the field. It assesses the advantages and disadvantages of dollarization regarding global crises. The data was compared and analyzed to check if there were patterns that support the paper objective which is that dollarization might serve as a protective mechanism against economic disruption. It was found that dollarization protects the economy against inflation, however, it does not fully protect the economy when considering economic performance and poverty. In conclusion, this research concludes that dollarization does not completely serve as a protective mechanism against economic disruptions nonetheless, it found that a bigger role is played by domestic policies and government action.