In face of the instability and financial crisis faced by semicolonial countries, a number of capitalist governments in Latin America and the Caribbean are moving to adopt the dollar as their national currency. This is being promoted from Washington to Buenos Aires as a way to curb inflation, attract foreign investment, and curtail devastating currency fluctuations.

The range of measures being adopted undercut national sovereignty and limit the ability of each country to defend itself against sudden shifts and downturns in the world capitalist economy.

Capitalist investors, government officials from several countries in Latin America, representatives from the International Monetary Fund (IMF), and other bourgeois figures have held numerous forums and debates on this policy, often called "dollarization."

"The biggest reason a country might want to dollarize is that its central bank has performed poorly, and under the circumstances dollarization is the most effective way of achieving a sound currency," answered Kurt Schuler, senior economist at the Joint Economic Committee of the U.S. Congress.

Over the past year, the governments in Ecuador and El Salvador have adopted the U.S. dollar as their official currency. The regime in Guatemala plans to replace its currency with the dollar on May 1, and the Dominican Republic as well as some of the English-speaking Caribbean governments are giving strong consideration to this shift.

For the past decade, the government in Argentina has pegged the value of its peso at one-to-one with the U.S. currency, and prominent capitalist politicians there have advocated adopting the dollar outright. The dollar has officially circulated in Panama since 1904.

In each case adopting the dollar has gone hand-in-hand with a government's drive to deepen its austerity program, accelerate the sell-off of state-owned industries, and open the country's natural resources more to imperialist exploitation. Working people are told these measures are the only alternative to hyperinflation, which can rapidly wipe out savings and lower the buying power of already meager wages.

Through a national currency a government is able to use monetary policy to respond to a variety of economic developments. These include setting interest rates, steps to increase or tighten the money supply, measures to raise or lower the value of the currency, and control individuals' ability to take money out of the country by purchasing of foreign currency. Measures such as these can curb currency speculation and affect the price of imports and exports, thus helping to boost economic activity or protect domestic markets, for example.

Governments in countries that completely convert to the dollar and no longer print their own currency give up the ability to use monetary policy and other levers to their benefit. All assets, liabilities, and prices are converted into dollars at the current exchange rate. If the old currency is still in use, reserves, payable in gold, precious metals, or U.S. dollars are held against the country's monetary base. Argentina, for example, holds $15 billion in U.S. Treasury bills to back the peso.

Washington looks out for its interests

Washington has made it clear it will not adjust its policies to suit the needs of countries that adopt the dollar. "It hardly needs emphasizing that the [U.S. Federal Reserve Board] will choose monetary policies based on U.S. conditions, not on the conditions of the dollarizing country," remarked Jeffrey Sachs, director of the Center for International Development at Harvard University.

Many in the imperialist ruling class in the United States and other capitalists favor countries adopting the dollar as official currency because it eliminates a range of inconveniences and problems stemming from having to deal with what can be unpredictable exchange rates or measures that inhibit maximum ease of imperialist banks, investing firms, or other corporations moving capital in and out of the country.

The government in El Salvador christened the dollar as an official currency this past New Year's Day. Even though the colón will be maintained as legal tender at a fixed exchange rate of 8.75 colones to the dollar, government officials say their goal is to replace it entirely. Carmén de Alemán, vice president of the Central Reserve Bank of El Salvador, said that the country only needed $450 million out of its $2 billion reserves to match the colones in circulation.

"The colones will be retired out of circulation to the extent that Salvadorans demand dollars, at the end they will be the ones that will decide what currency they will use to make their transactions," said Alemán. As part of its "Monetary Integration Law," El Salvador has arranged with the IMF to have access to $35 million "just in case it is needed," asserted Rafael Barraza, president of the Central Reserve Bank. The law bars the country's central bank from issuing more colones.

In El Salvador last month, the supreme court heard arguments from the Foundation for Studies for the Application of Law concerning the constitutionality of the monetary legislation. They have been joined by the Farabundo Martí National Liberation Front (FMLN). The FMLN's deputies to the national assembly had tried to get the law overturned last January.

The opposition's main claim was that the law was unconstitutional and that the government should have consulted other political parties. They called for a plesbicite on replacing the colón with the U.S. dollar as the country's official currency .

In Argentina, the government adopted a Convertibility Law in 1991, which established a currency board system setting the peso at a one-to-one ratio with the dollar. The law places sharp limits on the printing of money by the country's central bank in order to keep government-run banks from going bankrupt. Under Argentina's currency board, dollars are legal tender along with pesos, and the amount of pesos in circulation has to be equal to the country's reserves in dollars.

Despite these moves, Argentina sank into a deep, 18-month recession in 1995 following the devaluation of the Mexican peso. There was a run on Argentine banks as the propertied classes sought to turn in their pesos for U.S. dollars. The wealthy did not want to be caught with their holdings devalued in a depreciated currency. Argentine banks lost some 20 percent of their deposits and capital flight amounted to some $8 billion.

Four years later, the regime of President Carlos Menem called for abolishing the peso and replacing it with the U.S. dollar in response to a currency devaluation in Brazil, Argentina's largest trading partner. A layer of the ruling class in the country sees this as a way to reduce and eventually eliminate frequent speculation about devaluation of the peso.

Stability for profitable investments

Ruling-class figures in the United States are debating whether Argentina's currency board and the dollarization of other Latin American countries is the "best approach" to ensure stability for profitable investments. "Sticking to the currency board may condemn Argentina to a perpetual cycle of boom and bust as its economy is alternately stimulated and shocked by measures aimed at a different market," said the editors of the Washington Post.

Over the past year especially, Argentine exports have been hit hard because of the strength of the U.S. dollar on world markets. This helped lead to another financial crisis late last year. As Argentina teetered on the brink of defaulting on payments toward its $123 billion debt owed to U.S. banks and other financial institutions, the IMF granted a $40 billion "bailout" loan and demanded the regime impose austerity measures as conditions for the deal.

The reshuffling of the entire cabinet by President Fernando de la Rúa in early March, after 32 months of official recession, is the latest sign of political and economic turmoil in the country. One out of every four residents of the capital is living below the official poverty line and about 35,000 small industrial or agricultural companies have closed over the past decade. Argentina's official unemployment rate hit 15.4 percent in December.

Ruling-class layers in both the United States and Argentina worry about whether the regime is strong enough to push through cutbacks in the face of continued protests by workers and farmers. These included a 36-hour general strike last November where millions of workers walked out of factories, airports, railroads, buses, banks, schools, and government offices, shutting down the country.

"Fixed foreign exchange rates have a way of blowing up when the going gets tough," warned a December 7 New York Times article on Argentina. "The fixed rate is supposed to discipline governments, which learn they cannot simply print money to get around problems and therefore must make the tough decisions needed for economic stability."

Resistance to austerity in Ecuador

Resistance to these "tough decisions" and the capitalist rulers' attempts to impose "strict fiscal discipline" are what has been at the center of mobilizations by workers and peasants in Ecuador as well, where mass actions in February forced the government of Gustavo Noboa to retreat from a steep increase in the cost of gasoline, cooking gas, and public transportation. The protests included farmers blocking roads and thousands of indigenous people marching in the capital, Quito.

"Noboa, Ecuador's sixth president in five years, has been weakened by this battle," noted the Economist. The two previous Ecuadoran presidents were forced to resign when they tried to impose similar measures.

Last year the regime in Ecuador approved legislation replacing the country's national currency, the sucre, with the dollar at an exchange rate of 25,000 sucres to the dollar. The government plans to withdraw the last sucre bills from circulation in March. Along with this move, the government has pressed austerity policies against workers and peasants to make the country attractive to foreign investors.

In Ecuador, the price of the basic food basket went up from $253 in the month of December to around $270 in January, at the same time that the monthly minimum income went down. In March last year the average monthly household income was $52 compared to $193 dollars in 1997.

The transition to the U.S. currency has also brought some other complications. One concern of U.S. and local government agencies is the amount of counterfeit currency circulating in Latin America right now. News reports indicate many small vendors complain they have been victims of counterfeit schemes since they are not familiar enough with the new currency to detect fakes.

Other problems that have a more direct impact on working people are linked to social ills such as high levels of poverty and illiteracy that exist in these countries. In Ecuador, for example, before the dollar was adopted, the sucre was printed on different colors of paper according to the denomination. To introduce the dollar the government printed an instruction book to explain the value of the various denominations, but many cannot read the book. U.S. coins only have their value written in English.

Even some capitalist politicians in Latin America have noted that dollarization infringes on a country's sovereignty. They point to the fact that in the late 1980s, for example, the U.S. government cut off the supply of dollars to Panama in its effort to overthrow then President Manuel Noriega.

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