Should Latin America adopt the dollar?

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One crucial question is whether it serves America’s interests to increase its soft-power projection by pushing countries throughout the Americas to adopt the dollar—already the world’s dominant reserve currency—through more formal arrangements for trade and financial relations. Unlike Europe, where leaders deliberately forged a monetary union to achieve greater economic integration and enhanced security for the region, the U.S. has been ambivalent about seeking a common currency with its geographic neighbors.

While the eurozone now boasts 21 nations all using the euro issued by the European Central Bank, there are more than three dozen different currencies in official use in the Americas. Only Ecuador, El Salvador and Panama have adopted the U.S. dollar as their nation’s currency.

Dollarization has been discussed at high levels before—a 1999 Senate Banking Committee hearing considered whether the U.S. should officially encourage it—but no firm resolutions were drawn. Washington’s current focus on regional advancement has set the pros and cons into sharper relief.

It is time to reassess pushing the dollar in America’s backyard. The pros: Dollarizing nations effectively give the U.S. the profit from printing money (seigniorage); it amounts to an interest-free loan to Washington.

When U.S. firms and neighboring nations use the same currency, it reduces the cost of doing business and reduces uncertainty about future exchange rates. That in turn increases the capacity for productive capital and trade flows.