Author(s): Jeffrey Sachs and Felipe Larrain

Source: Foreign Policy , Autumn, 1999, No. 116 (Autumn, 1999), pp. 80-92

Published by: Slate Group, LLC

Stable URL: http://www.jstor.com/stable/1149645

The recent wave of financial crises has prompted some observers to argue that developing countries should abandon their own currencies and instead adopt the U.S. dollar (or perhaps the euro or yen, depending on their location). This conclusion is unwarranted, even reckless. Dollarization is an extreme solution to market instability, applicable in only the most extreme cases. The opposite approach-a flexible exchange rate between the national currency and the dollar-is much more prudent for most developing countries, including those hardest hit by recent crises.

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