Need inspiration?  ECONOMY POLITICA is proud to present, for your reading pleasure, the text of Theodore Roosevelt's stirring Man in the Arena speech.  This is one of the most inspiring speeches of all time and is as  relevant to modern society as it was to the crowd to which he delivered it.  If you are still depressed after this, you may yet be one of those cold and timid souls who neither knows victory nor defeat. I tend to think that, instead of having that reaction to the material, you will enjoy this classically-crafted piece of writing and oration!

Strange and impressive associations rise in the mind of a man from the New World who speaks before this august body in this ancient institution of learning. Before his eyes pass the shadows of mighty kings and war-like nobles, of great masters of law and theology; through the shining dust of the dead centuries he sees crowded figures that tell of the power and learning and splendor of times gone by; and he sees also the innumerable host of humble students to whom clerkship meant emancipation, to whom it was well-nigh the only outlet from the dark thraldom of the Middle Ages.

This was the most famous university of mediaeval Europe at a time when no one dreamed that there was a New World to discover. Its services to the cause of human knowledge already stretched far back into the remote past at a time when my forefathers, three centuries ago, were among the sparse bands of traders, ploughmen, wood-choppers, and fisherfolk who, in hard struggle with the iron unfriendliness of the Indian-haunted land, were laying the foundations of what has now become the giant republic of the West. To conquer a continent, to tame the shaggy roughness of wild nature, means grim warfare; and the generations engaged in it cannot keep, still less add to, the stores of garnered wisdom which where once theirs, and which are still in the hands of their brethren who dwell in the old land. To conquer the wilderness means to wrest victory from the same hostile forces with which mankind struggled on the immemorial infancy of our race. The primaeval conditions must be met by the primaeval qualities which are incompatible with the retention of much that has been painfully acquired by humanity as through the ages it has striven upward toward civilization. In conditions so primitive there can be but a primitive culture. At first only the rudest school can be established, for no others would meet the needs of the hard-driven, sinewy folk who thrust forward the frontier in the teeth of savage men and savage nature; and many years elapse before any of these schools can develop into seats of higher learning and broader culture.

The pioneer days pass; the stump-dotted clearings expand into vast stretches of fertile farm land; the stockaded clusters of log cabins change into towns; the hunters of game, the fellers of trees, the rude frontier traders and tillers of the soil, the men who wander all their lives long through the wilderness as the heralds and harbingers of an oncoming civilization, themselves vanish before the civilization for which they have prepared the way. The children of their successors and supplanters, and then their children and their children and children's children, change and develop with extraordinary rapidity.

The conditions accentuate vices and virtues, energy and ruthlessness, all the good qualities and all the defects of an intense individualism, self-reliant, self-centered, far more conscious of its rights than of its duties, and blind to its own shortcomings. To the hard materialism of the frontier days succeeds the hard materialism of an industrialism even more intense and absorbing than that of the older nations; although these themselves have likewise already entered on the age of a complex and predominantly industrial civilization.

As the country grows, its people, who have won success in so many lines, turn back to try to recover the possessions of the mind and the spirit, which perforce their fathers threw aside in order better to wage the first rough battles for the continent their children inherit. The leaders of thought and of action grope their way forward to a new life, realizing, sometimes dimly, sometimes clear-sightedly, that the life of material gain, whether for a nation or an individual, is of value only as a foundation, only as there is added to it the uplift that comes from devotion to loftier ideals. The new life thus sought can in part be developed afresh from what is roundabout in the New World; but it can developed in full only by freely drawing upon the treasure-houses of the Old World, upon the treasures stored in the ancient abodes of wisdom and learning, such as this is where I speak to-day. It is a mistake for any nation to merely copy another; but it is even a greater mistake, it is a proof of weakness in any nation, not to be anxious to learn from one another and willing and able to adapt that learning to the new national conditions and make it fruitful and productive therein. It is for us of the New World to sit at the feet of Gamaliel of the Old; then, if we have the right stuff in us, we can show that Paul in his turn can become a teacher as well as a scholar.

Today I shall speak to you on the subject of individual citizenship, the one subject of vital importance to you, my hearers, and to me and my countrymen, because you and we a great citizens of great democratic republics. A democratic republic such as ours - an effort to realize its full sense government by, of, and for the people - represents the most gigantic of all possible social experiments, the one fraught with great responsibilities alike for good and evil. The success or republics like yours and like ours means the glory, and our failure of despair, of mankind; and for you and for us the question of the quality of the individual citizen is supreme. Under other forms of government, under the rule of one man or very few men, the quality of the leaders is all-important. If, under such governments, the quality of the rulers is high enough, then the nations for generations lead a brilliant career, and add substantially to the sum of world achievement, no matter how low the quality of average citizen; because the average citizen is an almost negligible quantity in working out the final results of that type of national greatness. But with you and us the case is different. With you here, and with us in my own home, in the long run, success or failure will be conditioned upon the way in which the average man, the average women, does his or her duty, first in the ordinary, every-day affairs of life, and next in those great occasional cries which call for heroic virtues. The average citizen must be a good citizen if our republics are to succeed. The stream will not permanently rise higher than the main source; and the main source of national power and national greatness is found in the average citizenship of the nation. Therefore it behooves us to do our best to see that the standard of the average citizen is kept high; and the average cannot be kept high unless the standard of the leaders is very much higher.

It is well if a large proportion of the leaders in any republic, in any democracy, are, as a matter of course, drawn from the classes represented in this audience to-day; but only provided that those classes possess the gifts of sympathy with plain people and of devotion to great ideals. You and those like you have received special advantages; you have all of you had the opportunity for mental training; many of you have had leisure; most of you have had a chance for enjoyment of life far greater than comes to the majority of your fellows. To you and your kind much has been given, and from you much should be expected. Yet there are certain failings against which it is especially incumbent that both men of trained and cultivated intellect, and men of inherited wealth and position should especially guard themselves, because to these failings they are especially liable; and if yielded to, their- your- chances of useful service are at an end. Let the man of learning, the man of lettered leisure, beware of that queer and cheap temptation to pose to himself and to others as a cynic, as the man who has outgrown emotions and beliefs, the man to whom good and evil are as one. The poorest way to face life is to face it with a sneer. There are many men who feel a kind of twister pride in cynicism; there are many who confine themselves to criticism of the way others do what they themselves dare not even attempt. There is no more unhealthy being, no man less worthy of respect, than he who either really holds, or feigns to hold, an attitude of sneering disbelief toward all that is great and lofty, whether in achievement or in that noble effort which, even if it fails, comes to second achievement. A cynical habit of thought and speech, a readiness to criticise work which the critic himself never tries to perform, an intellectual aloofness which will not accept contact with life's realities - all these are marks, not as the possessor would fain to think, of superiority but of weakness. They mark the men unfit to bear their part painfully in the stern strife of living, who seek, in the affection of contempt for the achievements of others, to hide from others and from themselves in their own weakness. The rôle is easy; there is none easier, save only the rôle of the man who sneers alike at both criticism and performance.

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat. Shame on the man of cultivated taste who permits refinement to develop into fastidiousness that unfits him for doing the rough work of a workaday world. Among the free peoples who govern themselves there is but a small field of usefulness open for the men of cloistered life who shrink from contact with their fellows. Still less room is there for those who deride of slight what is done by those who actually bear the brunt of the day; nor yet for those others who always profess that they would like to take action, if only the conditions of life were not exactly what they actually are. The man who does nothing cuts the same sordid figure in the pages of history, whether he be a cynic, or fop, or voluptuary. There is little use for the being whose tepid soul knows nothing of great and generous emotion, of the high pride, the stern belief, the lofty enthusiasm, of the men who quell the storm and ride the thunder. Well for these men if they succeed; well also, though not so well, if they fail, given only that they have nobly ventured, and have put forth all their heart and strength. It is war-worn Hotspur, spent with hard fighting, he of the many errors and valiant end, over whose memory we love to linger, not over the memory of the young lord who "but for the vile guns would have been a valiant soldier."

France has taught many lessons to other nations: surely one of the most important lesson is the lesson her whole history teaches, that a high artistic and literary development is compatible with notable leadership im arms and statecraft. The brilliant gallantry of the French soldier has for many centuries been proverbial; and during these same centuries at every court in Europe the "freemasons of fashion: have treated the French tongue as their common speech; while every artist and man of letters, and every man of science able to appreciate that marvelous instrument of precision, French prose, had turned toward France for aid and inspiration. How long the leadership in arms and letters has lasted is curiously illustrated by the fact that the earliest masterpiece in a modern tongue is the splendid French epic which tells of Roland's doom and the vengeance of Charlemange when the lords of the Frankish hosts where stricken at Roncesvalles. Let those who have, keep, let those who have not, strive to attain, a high standard of cultivation and scholarship. Yet let us remember that these stand second to certain other things. There is need of a sound body, and even more of a sound mind. But above mind and above body stands character - the sum of those qualities which we mean when we speak of a man's force and courage, of his good faith and sense of honor. I believe in exercise for the body, always provided that we keep in mind that physical development is a means and not an end. I believe, of course, in giving to all the people a good education. But the education must contain much besides book-learning in order to be really good. We must ever remember that no keenness and subtleness of intellect, no polish, no cleverness, in any way make up for the lack of the great solid qualities. Self restraint, self mastery, common sense, the power of accepting individual responsibility and yet of acting in conjunction with others, courage and resolution - these are the qualities which mark a masterful people. Without them no people can control itself, or save itself from being controlled from the outside. I speak to brilliant assemblage; I speak in a great university which represents the flower of the highest intellectual development; I pay all homage to intellect and to elaborate and specialized training of the intellect; and yet I know I shall have the assent of all of you present when I add that more important still are the commonplace, every-day qualities and virtues.

Such ordinary, every-day qualities include the will and the power to work, to fight at need, and to have plenty of healthy children. The need that the average man shall work is so obvious as hardly to warrant insistence. There are a few people in every country so born that they can lead lives of leisure. These fill a useful function if they make it evident that leisure does not mean idleness; for some of the most valuable work needed by civilization is essentially non-remunerative in its character, and of course the people who do this work should in large part be drawn from those to whom remuneration is an object of indifference. But the average man must earn his own livelihood. He should be trained to do so, and he should be trained to feel that he occupies a contemptible position if he does not do so; that he is not an object of envy if he is idle, at whichever end of the social scale he stands, but an object of contempt, an object of derision. In the next place, the good man should be both a strong and a brave man; that is, he should be able to fight, he should be able to serve his country as a soldier, if the need arises. There are well-meaning philosophers who declaim against the unrighteousness of war. They are right only if they lay all their emphasis upon the unrighteousness. War is a dreadful thing, and unjust war is a crime against humanity. But it is such a crime because it is unjust, not because it is a war. The choice must ever be in favor of righteousness, and this is whether the alternative be peace or whether the alternative be war. The question must not be merely, Is there to be peace or war? The question must be, Is it right to prevail? Are the great laws of righteousness once more to be fulfilled? And the answer from a strong and virile people must be "Yes," whatever the cost. Every honorable effort should always be made to avoid war, just as every honorable effort should always be made by the individual in private life to keep out of a brawl, to keep out of trouble; but no self-respecting individual, no self-respecting nation, can or ought to submit to wrong.

Finally, even more important than ability to work, even more important than ability to fight at need, is it to remember that chief of blessings for any nations is that it shall leave its seed to inherit the land. It was the crown of blessings in Biblical times and it is the crown of blessings now. The greatest of all curses in is the curse of sterility, and the severest of all condemnations should be that visited upon willful sterility. The first essential in any civilization is that the man and women shall be father and mother of healthy children, so that the race shall increase and not decrease. If that is not so, if through no fault of the society there is failure to increase, it is a great misfortune. If the failure is due to the deliberate and wilful fault, then it is not merely a misfortune, it is one of those crimes of ease and self-indulgence, of shrinking from pain and effort and risk, which in the long run Nature punishes more heavily than any other. If we of the great republics, if we, the free people who claim to have emancipated ourselves form the thraldom of wrong and error, bring down on our heads the curse that comes upon the willfully barren, then it will be an idle waste of breath to prattle of our achievements, to boast of all that we have done. No refinement of life, no delicacy of taste, no material progress, no sordid heaping up riches, no sensuous development of art and literature, can in any way compensate for the loss of the great fundamental virtues; and of these great fundamental virtues the greatest is the race's power to perpetuate the race. Character must show itself in the man's performance both of the duty he owes himself and of the duty he owes the state. The man's foremast duty is owed to himself and his family; and he can do this duty only by earning money, by providing what is essential to material well-being; it is only after this has been done that he can hope to build a higher superstructure on the solid material foundation; it is only after this has been done that he can help in his movements for the general well-being. He must pull his own weight first, and only after this can his surplus strength be of use to the general public. It is not good to excite that bitter laughter which expresses contempt; and contempt is what we feel for the being whose enthusiasm to benefit mankind is such that he is a burden to those nearest him; who wishes to do great things for humanity in the abstract, but who cannot keep his wife in comfort or educate his children.

Nevertheless, while laying all stress on this point, while not merely acknowledging but insisting upon the fact that there must be a basis of material well-being for the individual as for the nation, let us with equal emphasis insist that this material well-being represents nothing but the foundation, and that the foundation, though indispensable, is worthless unless upon it is raised the superstructure of a higher life. That is why I decline to recognize the mere multimillionaire, the man of mere wealth, as an asset of value to any country; and especially as not an asset to my own country. If he has earned or uses his wealth in a way that makes him a real benefit, of real use- and such is often the case- why, then he does become an asset of real worth. But it is the way in which it has been earned or used, and not the mere fact of wealth, that entitles him to the credit. There is need in business, as in most other forms of human activity, of the great guiding intelligences. Their places cannot be supplied by any number of lesser intelligences. It is a good thing that they should have ample recognition, ample reward. But we must not transfer our admiration to the reward instead of to the deed rewarded; and if what should be the reward exists without the service having been rendered, then admiration will only come from those who are mean of soul. The truth is that, after a certain measure of tangible material success or reward has been achieved, the question of increasing it becomes of constantly less importance compared to the other things that can be done in life. It is a bad thing for a nation to raise and to admire a false standard of success; and their can be no falser standard than that set by the deification of material well-being in and for itself. But the man who, having far surpassed the limits of providing for the wants; both of the body and mind, of himself and of those depending upon him, then piles up a great fortune, for the acquisition or retention of which he returns no corresponding benefit to the nation as a whole, should himself be made to feel that, so far from being desirable, he is an unworthy, citizen of the community: that he is to be neither admired nor envied; that his right-thinking fellow countrymen put him low in the scale of citizenship, and leave him to be consoled by the admiration of those whose level of purpose is even lower than his own.

My position as regards the moneyed interests can be put in a few words. In every civilized society property rights must be carefully safeguarded; ordinarily, and in the great majority of cases, human rights and property rights are fundamentally and in the long run identical; but when it clearly appears that there is a real conflict between them, human rights must have the upper hand, for property belongs to man and not man to property. In fact, it is essential to good citizenship clearly to understand that there are certain qualities which we in a democracy are prone to admire in and of themselves, which ought by rights to be judged admirable or the reverse solely from the standpoint of the use made of them. Foremost among these I should include two very distinct gifts - the gift of money-making and the gift of oratory. Money-making, the money touch I have spoken of above. It is a quality which in a moderate degree is essential. It may be useful when developed to a very great degree, but only if accompanied and controlled by other qualities; and without such control the possessor tends to develop into one of the least attractive types produced by a modern industrial democracy. So it is with the orator. It is highly desirable that a leader of opinion in democracy should be able to state his views clearly and convincingly. But all that the oratory can do of value to the community is enable the man thus to explain himself; if it enables the orator to put false values on things, it merely makes him power for mischief. Some excellent public servants have not that gift at all, and must merely rely on their deeds to speak for them; and unless oratory does represent genuine conviction based on good common sense and able to be translated into efficient performance, then the better the oratory the greater the damage to the public it deceives. Indeed, it is a sign of marked political weakness in any commonwealth if the people tend to be carried away by mere oratory, if they tend to value words in and for themselves, as divorced from the deeds for which they are supposed to stand. The phrase-maker, the phrase-monger, the ready talker, however great his power, whose speech does not make for courage, sobriety, and right understanding, is simply a noxious element in the body politic, and it speaks ill for the public if he has influence over them. To admire the gift of oratory without regard to the moral quality behind the gift is to do wrong to the republic.

Of course all that I say of the orator applies with even greater force to the orator's latter-day and more influential brother, the journalist. The power of the journalist is great, but he is entitled neither to respect nor admiration because of that power unless it is used aright. He cna do, and often does, great good. He can do, and he often does, infinite mischief. All journalists, all writers, for the very reason that they appreciate the vast possibilities of their profession, should bear testimony against those who deeply discredit it. Offenses against taste and morals, which are bad enough in a private citizen, are infinitely worse if made into instruments for debauching the community through a newspaper. Mendacity, slander, sensationalism, inanity, vapid triviality, all are potent factors for the debauchery of the public mind and conscience. The excuse advanced for vicious writing, that the public demands it and that demand must be supplied, can no more be admitted than if it were advanced by purveyors of food who sell poisonous adulterations. In short, the good citizen in a republic must realize that the ought to possess two sets of qualities, and that neither avails without the other. He must have those qualities which make for efficiency; and that he also must have those qualities which direct the efficiency into channels for the public good. He is useless if he is inefficient. There is nothing to be done with that type of citizen of whom all that can be said is that he is harmless. Virtue which is dependant upon a sluggish circulation is not impressive. There is little place in active life for the timid good man. The man who is saved by weakness from robust wickedness is likewise rendered immune from robuster virtues. The good citizen in a republic must first of all be able to hold his own. He is no good citizen unless he has the ability which will make him work hard and which at need will make him fight hard. The good citizen is not a good citizen unless he is an efficient citizen.

But if a man's efficiency is not guided and regulated by a moral sense, then the more efficient he is the worse he is, the more dangerous to the body politic. Courage, intellect, all the masterful qualities, serve but to make a man more evil if they are merely used for that man's own advancement, with brutal indifference to the rights of others. It speaks ill for the community if the community worships these qualities and treats their possessors as heroes regardless of whether the qualities are used rightly or wrongly. It makes no difference as to the precise way in which this sinister efficiency is shown. It makes no difference whether such a man's force and ability betray themselves in a career of money-maker or politician, soldier or orator, journalist or popular leader. If the man works for evil, then the more successful he is the more he should be despised and condemned by all upright and far-seeing men. To judge a man merely by success is an abhorrent wrong; and if the people at large habitually so judge men, if they grow to condone wickedness because the wicked man triumphs, they show their inability to understand that in the last analysis free institutions rest upon the character of citizenship, and that by such admiration of evil they prove themselves unfit for liberty. The homely virtues of the household, the ordinary workaday virtues which make the woman a good housewife and housemother, which make the man a hard worker, a good husband and father, a good soldier at need, stand at the bottom of character. But of course many other must be added thereto if a state is to be not only free but great. Good citizenship is not good citizenship if only exhibited in the home. There remains the duties of the individual in relation to the State, and these duties are none too easy under the conditions which exist where the effort is made to carry on the free government in a complex industrial civilization. Perhaps the most important thing the ordinary citizen, and, above all, the leader of ordinary citizens, has to remember in political life is that he must not be a sheer doctrinaire. The closest philosopher, the refined and cultured individual who from his library tells how men ought to be governed under ideal conditions, is of no use in actual governmental work; and the one-sided fanatic, and still more the mob-leader, and the insincere man who to achieve power promises what by no possibility can be performed, are not merely useless but noxious.
The citizen must have high ideals, and yet he must be able to achieve them in practical fashion. No permanent good comes from aspirations so lofty that they have grown fantastic and have become impossible and indeed undesirable to realize. The impractical visionary is far less often the guide and precursor than he is the embittered foe of the real reformer, of the man who, with stumblings and shortcoming, yet does in some shape, in practical fashion, give effect to the hopes and desires of those who strive for better things. Woe to the empty phrase-maker, to the empty idealist, who, instead of making ready the ground for the man of action, turns against him when he appears and hampers him when he does work! Moreover, the preacher of ideals must remember how sorry and contemptible is the figure which he will cut, how great the damage that he will do, if he does not himself, in his own life, strive measurably to realize the ideals that he preaches for others. Let him remember also that the worth of the ideal must be largely determined by the success with which it can in practice be realized. We should abhor the so-called "practical" men whose practicality assumes the shape of that peculiar baseness which finds its expression in disbelief in morality and decency, in disregard of high standards of living and conduct. Such a creature is the worst enemy of the body of politic. But only less desirable as a citizen is his nominal opponent and real ally, the man of fantastic vision who makes the impossible better forever the enemy of the possible good.
We can just as little afford to follow the doctrinaires of an extreme individualism as the doctrinaires of an extreme socialism. Individual initiative, so far from being discouraged, should be stimulated; and yet we should remember that, as society develops and grows more complex, we continually find that things which once it was desirable to leave to individual initiative can, under changed conditions, be performed with better results by common effort. It is quite impossible, and equally undesirable, to draw in theory a hard-and-fast line which shall always divide the two sets of cases. This every one who is not cursed with the pride of the closest philosopher will see, if he will only take the trouble to think about some of our closet phenomena. For instance, when people live on isolated farms or in little hamlets, each house can be left to attend to its own drainage and water-supply; but the mere multiplication of families in a given area produces new problems which, because they differ in size, are found to differ not only in degree, but in kind from the old; and the questions of drainage and water-supply have to be considered from the common standpoint. It is not a matter for abstract dogmatizing to decide when this point is reached; it is a matter to be tested by practical experiment. Much of the discussion about socialism and individualism is entirely pointless, because of the failure to agree on terminology. It is not good to be a slave of names. I am a strong individualist by personal habit, inheritance, and conviction; but it is a mere matter of common sense to recognize that the State, the community, the citizens acting together, can do a number of things better than if they were left to individual action. The individualism which finds its expression in the abuse of physical force is checked very early in the growth of civilization, and we of to-day should in our turn strive to shackle or destroy that individualism which triumphs by greed and cunning, which exploits the weak by craft instead of ruling them by brutality. We ought to go with any man in the effort to bring about justice and the equality of opportunity, to turn the tool-user more and more into the tool-owner, to shift burdens so that they can be more equitably borne. The deadening effect on any race of the adoption of a logical and extreme socialistic system could not be overstated; it would spell sheer destruction; it would produce grosser wrong and outrage, fouler immortality, than any existing system. But this does not mean that we may not with great advantage adopt certain of the principles professed by some given set of men who happen to call themselves Socialists; to be afraid to do so would be to make a mark of weakness on our part.

But we should not take part in acting a lie any more than in telling a lie. We should not say that men are equal where they are not equal, nor proceed upon the assumption that there is an equality where it does not exist; but we should strive to bring about a measurable equality, at least to the extent of preventing the inequality which is due to force or fraud. Abraham Lincoln, a man of the plain people, blood of their blood, and bone of their bone, who all his life toiled and wrought and suffered for them, at the end died for them, who always strove to represent them, who would never tell an untruth to or for them, spoke of the doctrine of equality with his usual mixture of idealism and sound common sense. He said (I omit what was of merely local significance):
"I think the authors of the Declaration of Independence intended to include all men, but they did not mean to declare all men equal in all respects. They did not mean to say all men were equal in color, size, intellect, moral development or social capacity. They defined with tolerable distinctness in what they did consider all men created equal-equal in certain inalienable rights, among which are life, liberty and pursuit of happiness. This they said, and this they meant. They did not mean to assert the obvious untruth that all were actually enjoying that equality, or yet that they were about to confer it immediately upon them. They meant to set up a standard maxim for free society which should be familiar to all - constantly looked to, constantly labored for, and, even though never perfectly attained, constantly approximated, and thereby constantly spreading and deepening its influence, and augmenting the happiness and value of life to all people, everywhere."
We are bound in honor to refuse to listen to those men who would make us desist from the effort to do away with the inequality which means injustice; the inequality of right, opportunity, of privilege. We are bound in honor to strive to bring ever nearer the day when, as far is humanly possible, we shall be able to realize the ideal that each man shall have an equal opportunity to show the stuff that is in him by the way in which he renders service. There should, so far as possible, be equal of opportunity to render service; but just so long as there is inequality of service there should and must be inequality of reward. We may be sorry for the general, the painter, the artists, the worker in any profession or of any kind, whose misfortune rather than whose fault it is that he does his work ill. But the reward must go to the man who does his work well; for any other course is to create a new kind of privilege, the privilege of folly and weakness; and special privilege is injustice, whatever form it takes. To say that the thriftless, the lazy, the vicious, the incapable, ought to have reward given to those who are far-sighted, capable, and upright, is to say what is not true and cannot be true. Let us try to level up, but let us beware of the evil of leveling down. If a man stumbles, it is a good thing to help him to his feet. Every one of us needs a helping hand now and then. But if a man lies down, it is a waste of time to try and carry him; and it is a very bad thing for every one if we make men feel that the same reward will come to those who shirk their work and those who do it. 

Let us, then, take into account the actual facts of life, and not be misled into following any proposal for achieving the millennium, for recreating the golden age, until we have subjected it to hardheaded examination. On the other hand, it is foolish to reject a proposal merely because it is advanced by visionaries. If a given scheme is proposed, look at it on its merits, and, in considering it, disregard formulas. It does not matter in the least who proposes it, or why. If it seems good, try it. If it proves good, accept it; otherwise reject it. There are plenty of good men calling themselves Socialists with whom, up to a certain point, it is quite possible to work. If the next step is one which both we and they wish to take, why of course take it, without any regard to the fact that our views as to the tenth step may differ. But, on the other hand, keep clearly in mind that, though it has been worth while to take one step, this does not in the least mean that it may not be highly disadvantageous to take the next. It is just as foolish to refuse all progress because people demanding it desire at some points to go to absurd extremes, as it would be to go to these absurd extremes simply because some of the measures advocated by the extremists were wise. The good citizen will demand liberty for himself, and as a matter of pride he will see to it that others receive liberty which he thus claims as his own. Probably the best test of true love of liberty in any country in the way in which minorities are treated in that country. Not only should there be complete liberty in matters of religion and opinion, but complete liberty for each man to lead his life as he desires, provided only that in so he does not wrong his neighbor. Persecution is bad because it is persecution, and without reference to which side happens at the most to be the persecutor and which the persecuted. Class hatred is bad in just the same way, and without regard to the individual who, at a given time, substitutes loyalty to a class for loyalty to a nation, of substitutes hatred of men because they happen to come in a certain social category, for judgement awarded them according to their conduct. Remember always that the same measure of condemnation should be extended to the arrogance which would look down upon or crush any man because he is poor and to envy and hatred which would destroy a man because he is wealthy. The overbearing brutality of the man of wealth or power, and the envious and hateful malice directed against wealth or power, are really at root merely different manifestations of the same quality, merely two sides of the same shield. The man who, if born to wealth and power, exploits and ruins his less fortunate brethren is at heart the same as the greedy and violent demagogue who excites those who have not property to plunder those who have. The gravest wrong upon his country is inflicted by that man, whatever his station, who seeks to make his countrymen divide primarily in the line that separates class from class, occupation from occupation, men of more wealth from men of less wealth, instead of remembering that the only safe standard is that which judges each man on his worth as a man, whether he be rich or whether he be poor, without regard to his profession or to his station in life. Such is the only true democratic test, the only test that can with propriety be applied in a republic. There have been many republics in the past, both in what we call antiquity and in what we call the Middle Ages. They fell, and the prime factor in their fall was the fact that the parties tended to divide along the wealth that separates wealth from poverty. It made no difference which side was successful; it made no difference whether the republic fell under the rule of and oligarchy or the rule of a mob. In either case, when once loyalty to a class had been substituted for loyalty to the republic, the end of the republic was at hand. There is no greater need to-day than the need to keep ever in mind the fact that the cleavage between right and wrong, between good citizenship and bad citizenship, runs at right angles to, and not parallel with, the lines of cleavage between class and class, between occupation and occupation. Ruin looks us in the face if we judge a man by his position instead of judging him by his conduct in that position. In a republic, to be successful we must learn to combine intensity of conviction with a broad tolerance of difference of conviction. Wide differences of opinion in matters of religious, political, and social belief must exist if conscience and intellect alike are not be stunted, if there is to be room for healthy growth. Bitter internecine hatreds, based on such differences, are signs, not of earnestness of belief, but of that fanaticism which, whether religious or antireligious, democratic or antidemocratic, it itself but a manifestation of the gloomy bigotry which has been the chief factor in the downfall of so many, many nations. Of one man in especial, beyond any one else, the citizens of a republic should beware, and that is of the man who appeals to them to support him on the ground that he is hostile to other citizens of the republic, that he will secure for those who elect him, in one shape or another, profit at the expense of other citizens of the republic. It makes no difference whether he appeals to class hatred or class interest, to religious or antireligious prejudice. The man who makes such an appeal should always be presumed to make it for the sake of furthering his own interest. The very last thing an intelligent and self-respecting member of a democratic community should do is to reward any public man because that public man says that he will get the private citizen something to which this private citizen is not entitled, or will gratify some emotion or animosity which this private citizen ought not to possess. Let me illustrate this by one anecdote from my own experience. A number of years ago I was engaged in cattle-ranching on the great plains of the western Unite States. There were no fences. The cattle wandered free, the ownership of each one was determined by the brand; the calves were branded with the brand of the cows they followed. If on a round-up and animal was passed by, the following year it would appear as an unbranded yearling, and was then called a maverick. By the custom of the country these mavericks were branded with the brand of the man on whose range they were found. One day I was riding the range with a newly hired cowboy, and we came upon a maverick. We roped and threw it; then we built a fire, took out a cinch-ring, heated it in the fire; and then the cowboy started to put on the brand. I said to him, "It So-and-so's brand," naming the man on whose range we happened to be. He answered: "That's all right, boss; I know my business." In another moment I said to him: "Hold on, you are putting on my brand!" To which he answered: "That's all right; I always put on the boss's brand." I answered: "Oh, very well. Now you go straight back to the ranch and get whatever is owing to you; I don't need you any longer." He jumped up and said: "Why, what's the matter? I was putting on your brand." And I answered: "Yes, my friend, and if you will steal for me then you will steal from me." Now, the same principle which applies in private life applies also in public life. If a public man tries to get your vote by saying that he will do something wrong in your interest, you can be absolutely certain that if ever it becomes worth his while he will do something wrong against your interest. So much for the citizenship to the individual in his relations to his family, to his neighbor, to the State. There remain duties of citizenship which the State, the aggregation of all the individuals, owes in connection with other States, with other nations. Let me say at once that I am no advocate of a foolish cosmopolitanism. I believe that a man must be a good patriot before he can be, and as the only possible way of being, a good citizen of the world. Experience teaches us that the average man who protests that his international feeling swamps his national feeling, that he does not care for his country because he cares so much for mankind, in actual practice proves himself the foe of mankind; that the man who says that he does not care to be a citizen of any one country, because he is the citizen of the world, is in fact usually and exceedingly undesirable citizen of whatever corner of the world he happens at the moment to be in. In the dim future all moral needs and moral standards may change; but at present, if a man can view his own country and all others countries from the same level with tepid indifference, it is wise to distrust him, just as it is wise to distrust the man who can take the same dispassionate view of his wife and mother. However broad and deep a man's sympathies, however intense his activities, he need have no fear that they will be cramped by love of his native land. Now, this does not mean in the least that a man should not wish to good outside of his native land. On the contrary, just as I think that the man who loves his family is more apt to be a good neighbor than the man who does not, so I think that the most useful member of the family of nations is normally a strongly patriotic nation. So far from patriotism being inconsistent with a proper regard for the rights of other nations, I hold that the true patriot, who is as jealous of the national honor as a gentleman of his own honor, will be careful to see that the nations neither inflicts nor suffers wrong, just as a gentleman scorns equally to wrong others or to suffer others to wrong him. I do not for one moment admit that a man should act deceitfully as a public servant in his dealing with other nations, any more than he should act deceitfully in his dealings as a private citizen with other private citizens. I do not for one moment admit that a nation should treat other nations in a different spirit from that in which an honorable man would treat other men. In practically applying this principle to the two sets of cases there is, of course, a great practical difference to be taken into account. We speak of international law; but international law is something wholly different from private of municipal law, and the capital difference is that there is a sanction for the one and no sanction for the other; that there is an outside force which compels individuals to obey the one, while there is no such outside force to compel obedience as regards to the other. International law will, 
I believe, as the generations pass, grow stronger and stronger until in some way or other there develops the power to make it respected. But as yet it is only in the first formative period. As yet, as a rule, each nation is of necessity to judge for itself in matters of vital importance between it and its neighbors, and actions must be of necessity, where this is the case, be different from what they are where, as among private citizens, there is an outside force whose action is all-powerful and must be invoked in any crisis of importance. It is the duty of wise statesman, gifted with the power of looking ahead, to try to encourage and build up every movement which will substitute or tend to substitute some other agency for force in the settlement of international disputes. It is the duty of every honest statesman to try to guide the nation so that it shall not wrong any other nation. But as yet the great civilized peoples, if they are to be true to themselves and to the cause of humanity and civilization, must keep in mind that in the last resort they must possess both the will and the power to resent wrong-doings from others. The men who sanely believe in a lofty morality preach righteousness; but they do not preach weakness, whether among private citizens or among nations. We believe that our ideals should be so high, but not so high as to make it impossible measurably to realize them. We sincerely and earnestly believe in peace; but if peace and justice conflict, we scorn the man who would not stand for justice though the whole world came in arms against him. And now, my hosts, a word in parting. You and I belong to the only two republics among the great powers of the world. The ancient friendship between France and the United States has been, on the whole, a sincere and disinterested friendship. A calamity to you would be a sorrow to us. But it would be more than that. In the seething turmoil of the history of humanity certain nations stand out as possessing a peculiar power or charm, some special gift of beauty or wisdom of strength, which puts them among the immortals, which makes them rank forever with the leaders of mankind. France is one of these nations. For her to sink would be a loss to all the world. There are certain lessons of brilliance and of generous gallantry that she can teach better than any of her sister nations. When the French peasantry sang of Malbrook, it was to tell how the soul of this warrior-foe took flight upward through the laurels he had won. 

Nearly seven centuries ago, Froisart, writing of the time of dire disaster, said that the realm of France was never so stricken that there were not left men who would valiantly fight for it. You have had a great past. I believe you will have a great future. Long may you carry yourselves proudly as citizens of a nation which bears a leading part in the teaching and uplifting of mankind.

--Theodore Roosevelt's Speech at the Sorbonne in Paris, France on April 23, 1910



I thought it might be nice to periodically re-present history's greatest speeches. Today, I am re-presenting Lincoln's second inaugural address. Delivered only about a month before he was slain, many regard this as a better speech than the Gettysburg Address. One thing is for sure, like many of our great presidents, Lincoln was a thoughtful writer. Enjoy!


T this second appearing to take the oath of the Presidential office there is less occasion for an extended address than there was at the first. Then a statement somewhat in detail of a course to be pursued seemed fitting and proper. Now, at the expiration of four years, during which public declarations have been constantly called forth on every point and phase of the great contest which still absorbs the attention and engrosses the energies of the nation, little that is new could be presented. The progress of our arms, upon which all else chiefly depends, is as well known to the public as to myself, and it is, I trust, reasonably satisfactory and encouraging to all. With high hope for the future, no prediction in regard to it is ventured.

On the occasion corresponding to this four years ago all thoughts were anxiously directed to an impending civil war. All dreaded it, all sought to avert it. While the inaugural address was being delivered from this place, devoted altogether to saving the Union without war, urgent agents were in the city seeking to destroy it without war—seeking to dissolve the Union and divide effects by negotiation. Both parties deprecated war, but one of them would make war rather than let the nation survive, and the other would accept war rather than let it perish, and the war came.

One-eighth of the whole population were colored slaves, not distributed generally over the Union, but localized in the southern part of it. These slaves constituted a peculiar and powerful interest. All knew that this interest was somehow the cause of the war. To strengthen, perpetuate, and extend this interest was the object for which the insurgents would rend the Union even by war, while the Government claimed no right to do more than to restrict the territorial enlargement of it. Neither party expected for the war the magnitude or the duration which it has already attained. Neither anticipated that the causeof the conflict might cease with or even before the conflict itself should cease. Each looked for an easier triumph, and a result less fundamental and astounding. Both read the same Bible and pray to the same God, and each invokes His aid against the other. It may seem strange that any men should dare to ask a just God's assistance in wringing their bread from the sweat of other men's faces, but let us judge not, that we be not judged. The prayers of both could not be answered. That of neither has been answered fully. The Almighty has His own purposes. "Woe unto the world because of offenses; for it must needs be that offenses come, but woe to that man by whom the offense cometh." If we shall suppose that American slavery is one of those offenses which, in the providence of God, must needs come, but which, having continued through His appointed time, He now wills to remove, and that He gives to both North and South this terrible war as the woe due to those by whom the offense came, shall we discern therein any departure from those divine attributes which the believers in a living God always ascribe to Him? Fondly do we hope, fervently do we pray, that this mighty scourge of war may speedily pass away. Yet, if God wills that it continue until all the wealth piled by the bondsman's two hundred and fifty years of unrequited toil shall be sunk, and until every drop of blood drawn with the lash shall be paid by another drawn with the sword, as was said three thousand years ago, so still it must be said "the judgments of the Lord are true and righteous altogether."

With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation's wounds, to care for him who shall have borne the battle and for his widow and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations.

- Abraham Lincoln, March 4, 1865



Written by E. C. Arroyo

Dollarization is when “a country adopts as legal tender another country’s currency [and] the adopted currency takes over all the functions of domestic currency: a unit of account, medium of exchange, and store of value” (Quispe-Agnoli and Whisler, 55). According to Hira and Dean, there exist two forms of dollarization. “De facto dollarisation is spontaneous adoption of the dollar (or any foreign currency) by the general public without supporting government legislation, a process which has been well underway in Latin America for many years . . . De jure dollarisation, by contrast, entails government legitimization, which may range from simply declaring the dollar to be legal tender, to withdrawing all domestic currency, to abolishing all other legal tender” (Hira and Dean, 462).

In 1904, Panama was the first Latin American country to implement official dollarization, however, more recently, Latin American policymakers have employed official dollarization as a policy tool to defuse exchange rate crisis, or as part of a larger policy package designed to compliment structural adjustment and other reforms. In Ecuador during 1999 and 2000, President Jamil Mahuad and his successor Gustavo Noboa implemented official dollarization to combat a severe bout of hyperinflation, which saw the Sucre drop 25,000 to 1 vs. the U.S. dollar. Shortly after during 2001, El Salvador’s President, Francisco Flores, replaced the Colon with the U.S. dollar to compliment a series of policy packages recommended by the International Monetary Fund. “While we normally think of monetary reform in terms of central bank engineered or supply-side reform, [unofficial] dollarization is a reform occurring from demand-side initiative. The failure of [Latin American] central [banks] to provide a high-confidence domestic money leads money demanders to substitute away from the domestic currency toward a more stable valued dollar” (Melvin, 551). Needless to say, the U.S. dollar has long been a medium of exchange throughout Latin American countries, but as can be expected, the prevalence of unofficial dollarization is unknown, because it is often difficult for monetary authorities to discern the amount of foreign currency in circulation. Depending on the extent of unofficial dollarization that occurs within an economy, it may make monetary sense for Latin American governments to implement de jure dollarization, rather than function under a system of de facto dollarization. In order to provide some guidance to Finance Ministers, Central Bank officials, and those within government possessing leadership roles, this selection will address the steps needed to implement dollarization, the macroeconomic effects and the cost and benefits of dollarization, and the circumstances under which currency substitution is a viable policy alternative. As to be anticipated, with any drastic changes in monetary policy, there will always be winners and losers, however, by outlining the experiences of countries that have dollarized, such as Panama, Ecuador, and El Salvador, it is expected that governments will make more informed policy decisions. This is with the hope that transition towards using a new currency will be more stable and free from economic shocks, thus minimizing the socioeconomic impact of currency substitution. Despite that dollarization is useful in bringing macroeconomic stability to some countries, it is important for governments to consider those groups at the margins of society, who argue that they have yet to reap the benefits of using a foreign currency. While dollarization is supported by some who are active participants in the formal economy and who are well connected to international financial and trade circles, there are those who stand to lose. Recognition of this problem is the first step governments can take to formulate policy initiatives to counter any widespread social discontent owing to dollarization. Consequently, this selection will also address specific actions that can be taken by governments to neutralize the negative effects of dollarization.
The Denomination Displacement Method: Approximations of Unofficial Dollarization

“The dollarization of Latin America has received only slight attention as a significant economic phenomenon. This lack of attention is probably due to the unavailability of data on dollar assets used in financing Latin American transactions” (Melvin, 544). For government officials, the inability to measure dollars in circulation is an impediment to pursuing official dollarization. Thus, being in charge of a Central Bank in a Latin American country, the first step necessary to implement dollarization is to research how much foreign currency is already in circulation. If there is a lack of information on the current amount of dollars in circulation, the Central Bank will be unaware of the correct number of dollars needed to replace the domestic money supply. Although unlikely, this could prompt a situation by where the Central Bank ends up releasing more dollars than necessary into the economy, prompting an inflationary crisis. In addition, the Central Bank can inadvertently purchase more dollars than it needs from the U.S. government and increase its dollar-denominated liabilities. According to Feige, Faulend, Sonje, and Sosic, the IMF looks at the “. . .foreign currency deposits held with domestic banks,” to determine the extent of unofficial dollarization, but unfortunately, there is still a lack of information regarding “foreign currency (cash) in circulation outside the banking system (FCC)” (Feige, Faulend, Sonje, and Sosic, 220). Some estimates put the number of dollars in circulation outside the U.S. to be 40% to 60% of the entire U.S. currency supply, however, to acquire more exact data, foreign governments can check with the U.S. Customs Service to obtain the sum of U.S. dollars that have crossed into their border (Feige, Faulend, Sonje, and Sosic, 224). As mandated by the Bank Secrecy Act, “persons or institutions importing or exporting currency. . .” in excess of $10,000 U.S. dollars are required since 1980 to file a Report of International Transportation of Currency or Monetary Instruments (Feige, Faulend, Sonje, Sosic, 224). “The largest component of cross-border currency flows is wholesale bulk shipments of U.S. currency by large financial institutions that specialize in the international transport of currency” (Feige, Faulend, Sonje, and Sosic, 225). Additional ways by which U.S. dollars reach foreign nations is via multinational firms, individual tourists carrying less than $ 10,000 U.S. dollars, and illegal transfers stemming from money laundering and drug-related activities (Feige, Faulend, Sonje, and Sosic, 225).

Although studying the data collected by the U.S. Customs Service is one way to obtain an approximation of the number of U.S. dollars in circulation, there are other means by which U.S. dollars can enter a country that cannot be accounted for by reviewing Customs reports. For instance, if there was a dollar outflow from the U.S. to Mexico and then a dollar outflow from Mexico to El Salvador, there is no way to determine the number of dollars in El Salvador by simply looking at Customs reports. The U.S. Customs Service may perhaps underreport the extent of unofficial dollarization in El Salvador, due to imperfect information regarding the inflow of U.S. dollars to El Salvador through a third country. For this reason Feige, Faulend, Sonje, and Sosic have proposed denomination displacement as a method by which policymakers considering dollarization can determine the number of dollars already in circulation. The denomination displacement method is based on the hypothesis that as the extent of unofficial dollarization increases within a country, people will tend to use higher denomination foreign currency bills for their larger transactions (Feige, Faulend, Sonje, and Sosic, 230). This is particularly the case in a country where prices are increasing as well. Specifically, “. . . countries that are heavily (unofficially) dollarized with large-denomination foreign bills will have domestic currency (LCC) [local currency in circulation outside the banking system] denomination structures that are unusually skewed away from higher denomination domestic bills” (Feige, Faulend, Sonje, and Sosic, 230). “Denomination displacement occurs as higher denomination [foreign] bills substitute for the high-denomination [domestic] bills” (Feige, Faulend, Sonje, and Sosic, 230). By looking at the shifts in the denomination structure of those countries for which there is accurate information regarding the number of dollars (Argentina) and comparing them to those countries where there is insufficient data, it is possible to determine the number of dollars in circulation. The use of economists and finance specialist well versed in monetary policy is recommended throughout this process, because solving of mathematical equations and complex use of regression analysis is required. “. . . It is possible to obtain an estimate of the unknown amount of foreign currency in circulation in by substituting the known values of the independent variables [for a particular country] and solving the equation for the unknown quantity of FCC [(foreign currency in circulation)]” (Feige, Faulend, Sonje, and Sosic, 236). The known values in this case would be the domestic currency in circulation and the amount of domestic currency deposited in local banks (Feige, Faulend, Sonje, and Sosic, 220). 

Dollarization: A Catalyst for Deeper Economic Reforms?
Now that the initial phases of the dollarization process have been dealt with, officials must be forced to think about why they are carrying out dollarization. If they expect dollarization to be a panacea for their economy, they are mistaken; however, if they deem currency substitution to be only one element of an integral program of numerous structural reforms, then it may help the economy in the long-term. Hira and Dean suggest, “because of the political difficulties of developing second generation reforms, dollarisation is being sold politically in Latin America as a substitute for tough reforms (Hira and Dean, 478). As in the case of Ecuador, monetary officials saw dollarization as a means by which to give “shock therapy” and accelerate transformations in other sectors of the economy; however, currency substitution is no replacement for making politically unpopular decisions. Dollarization must be an adjunct to deeper reforms, such as improving labor flexibility, reducing government spending, balancing the budget, and cutting populist social programs.

In the dispute that occurred in the European Union between the monetarists and the economists at the start of eurorization, the debate concerning the outlook for economic reforms under a currency substitution arrangement is illustrated (Eichengreen, 2). “The “economists,” German officials for present purposes, argued that economic policies and performance had to converge and institutions had to be harmonized before Europe could proceed to monetary union” (Eichengreen, 2). The “monetarists” (French officials), on the other hand, argued that eurorization itself would bring about convergence between newly eurorized and previously eurorized countries (Eichengreen, 2). Convergence entailed the lowering of inflation rates, capital mobility, elimination of the fiscal deficit, and in general, harmonization of economic policies with the wider EU. In the end, the “economists” won out and it was required that before countries joined the EU, they follow a strict set of macroeconomic restructuring programs to bring their economic houses in order. It is essential to bring focus to the eurorization debate because Latin American officials need to be aware that official dollarization requires economic policies to synchronize and converge with those in the United States. If stark macroeconomic disparities between the U.S. and the dollarized country are existent, the decisions made at the Federal Reserve will not be effective in jumpstarting or cooling the economy of the dollarizer. “Monetary policy is optimally used differently where unemployment and business conditions fluctuate differently. The interest rate cuts needed to moderate increases in unemployment and the interest rate increases needed to counter increases in inflation will occur at different times in countries across which conditions differ” (Eichengreen, 16). Therefore, it is imperative that politicians make reforms accordingly to tie their economy to that of the country whose currency they are using. 

Barry Eichengreen, who looked at whether dollarization alone would accelerate the pace of labor market reform, fiscal reform, and financial sector reform, found that dollarization alone is not enough. In the case of Argentina, “observers of Argentine convertibility will be skeptical that a hard exchange rate constraint guarantees labor market reform [because] bargaining in Argentina remains centralized, encouraging wage compression and limiting flexibility. . .” (Eichengreen, 5). Unemployment remains high in Ecuador, El Salvador, and Argentina, hence, this is “hardly evidence of adequate labor market flexibility” (Eichengreen, 5). Granted, Argentina has yet to officially dollarize, however, it has maintained a hard peg of 1:1 to the U.S. dollar since the early 1990’s. In regards to fiscal discipline, those in favor of early dollarization argue that limiting the ability of the government to print money to finance budget deficits will prevent overspending. As has occurred in the past in Latin America, “if an irresponsible central bank is given freedom to issue pesos without worrying about the consequences for the exchange rate, it will simply print pesos to its heart’s content to fund a large budget deficit or to provide cheap credits to the banking system” (Sachs and Larrain, 81). Dollarization will surely prevent this type of self-destructive behavior. Yet, one could argue that the increased availability of commercial credit lines from private banks after official dollarization will encourage governments to get into debt instead of printing money to finance their spending. Essentially, they will have debt-led economic growth and will be swapping one destructive economic policy for another. The point is then made that if government’s in Latin America simply attempt to use dollarization as a temporary patch to boost their economy, their intentions will quickly become evident throughout the international economic community. International investors will quickly lose confidence, and the country’s credit rating will drop, making it difficult to acquire capital in international financial markets. Policymakers must be wholly committed to solving the deeper structural issues facing their economy, if they have the desire to make constructive reforms under a dollarized regime.

Macro and Microeconomic Effects of Dollarization

Once a Latin American government has decided to dollarize and has in essence tossed the key to the central bank, what can the country expect in terms of macroeconomic effects of dollarization? (Eichengreen, 3). “The main benefit [of dollarization] is increased efficiency in transactions between countries and thus, increased trade. . . A second benefit to a country that gives up full control over its currency is an increase in the stability and credibility of its macroeconomic policy” (Jameson, 6). One significant effect of dollarization is that interest rates in the foreign country will tend to converge with U.S. interest rates. This can help the country in several ways, one being that interest paid on debts held with the IMF or foreign sector banks will dramatically decrease, freeing up government revenues (Eichengreen, 2). Clearly, international financial institutions will charge higher interest if they are loaning in a currency not renowned for stability. “Banks and firms seeking funding abroad find themselves unable to borrow in the domestic currency. Since this leaves them saddled with mismatched dollar liabilities and domestic-currency-denomination assets, they get smashed whenever the currency depreciates” (Eichengreen, 8). However, loaning money to a country that is officially dollarized puts downward pressure on interest rates because loans are made in a stable currency. Specifically, “dollarization will enable the government to lengthen the term structure of its debt by removing the currency risk that causes investors to prefer short maturities. [Furthermore, dollarization will increase] the government’s access to commercial credit lines, arming it with the resources to provide at least limited lender-of-last-resort services” (Eichengreen, 2). Additional revenues available, as a result of not having to pay high debt servicing costs can be spent on infrastructure projects or education. An alternative option is to place funds in an interest bearing account to be used at a future date.
As mentioned previously, bilateral trade between the dollarized country and the United States will increase exponentially, once currency risk is removed from the equation. “. . . Dollarisation eliminates the transactions costs of exchanging one currency for another and [it] allows a country to make maximum use of the de facto dollars that are already part of the economy” (Hira and Dean, 463). Making use of the de facto dollars in circulation provides for greater transparency and can assist law enforcement agencies in combating money laundering and drug smuggling activities. Eradication of transaction costs enhances trade because firms save on the cost of currency insurance and they avoid having to engage in hedging, such as currency swapping and trading in forward markets. Foreign investors will not be as hesitant to invest their capital to purchase assets denominated in dollars, because the threat of massive currency devaluation is minimized. Above all, the capital account will flourish because of an increase in both portfolio investment and foreign direct investment. Domestic companies also have greater access to capital after dollarization, because they are able to list on international stock exchanges in New York, London, and Tokyo, to attract a diverse array of international investors. The ability of domestic companies to access long-term capital in international markets provides an incentive to undertake larger projects, thus contributing to economic growth and job creation for the entire economy. Firms eventually will move up on the experience curve and develop economies of scale, opening up the possibility of becoming internationally competitive. “. . . Dollarization, by downsizing the safety net, will force managers to reinforce their own precautionary measures and intensify their peer monitoring, or go out of business” (Eichengreen, 9). 

At the microeconomic level, the opportunity for consumers to access affordable consumer credit becomes a reality. It has been confirmed repeatedly that giving consumers in developing countries access to credit is the surest way to improve the standard of living of the poorest sectors of the population. The Grameen Bank in Bangladesh and its micro-credit program that has a 99% repayment rate, is just one example of the difference credit can make in the lives of those working in the informal sector. In regards to creating more responsive government institutions, the best prescription to constrain irresponsible Central Banks and spendthrift government agencies is dollarization, because printing money is not available as a means to finance deficit spending. “No longer can [the] government influence the exchange rate, and limits are imposed on expansionary economic policy” (Jameson, 6). Historically, overspending has been a huge problem in Latin America because the government chooses to live beyond its means. Yet, under a dollarized regime, inflation is automatically brought into line with the U.S. inflation rate because politicians are cut off from the purse strings of the Central Bank. Dollarization then has the effect of insulating the citizenry from the bad decisions made by their government, and at the same time, political demagogues no longer exploit their spending power before election time to entice masses of voters. Currency substitution also creates greater transparency in the commercial and financial sectors; because banks and firms must conform to international standard practices and be open to scrutiny should shady dealings occur. As international scrutiny increases, risk management practices will be enhanced and banks will better screen their clientele to avoid making bad loans.

The Costs of Losing Monetary Sovereignty

At first glance, the benefits of dollarization would overwhelmingly convince government officials that it is preferable to operating under a fixed or floating exchange rate regime, but nevertheless, there exist many downsides to currency substitution that have yet to be discussed. An area where dollarization can have a negative impact, at least in the short term, is on the balance of trade. Under an arrangement where a country operates with a domestic currency, exports to the United States and other developed nations tend to thrive, since monetary authorities can use currency devaluations to make exports cheaper for consumers in the importing country. Exports are a particularly vital component of Latin American economies, which specialize in the production of raw materials or commodity products, such as cooper, petroleum, shrimp, sugar, coffee, and bananas. Unfortunately, once full dollarization becomes official, exports become more expensive and priced out of the reach of consumers in developed countries. The current account deficit can deteriorate if the U.S. dollar were to appreciate versus other major world currencies, i.e. the Euro, Yen, or British Pound. “Countries that have greater amounts of trade with third-party (non-US) countries stand to suffer from a reduction in export competitiveness should the dollar appreciate against these third-party currencies. Within countries, regions that have higher proportions of third-party trade may suffer recessionary effects” (Hira and Dean, 476). The only way then to make exports from Latin American countries more competitive is to lower production costs. This is what Sach’s describes as a monetary straitjacket. “If a country abandons its national currency in favor of the U.S. dollar, the result is very much like a pegged exchange rate, only with less room to maneuver. First, of course, there is no longer the “shock absorber” of exchange rate depreciation. The only alternative is a cut in wage levels, which is likely to be a long, drawn out affair, with lots of interim unemployment” (Sachs and Larrain, 86). 

Another danger to the balance of trade is that if international investors and currency speculators lose confidence in the U.S. dollar as the international reserve currency, the price of imports from Latin America’s third country trading partners, such as the European Union and China, suddenly become quite expensive. As investors sell the dollar short in currency markets, dollar depreciation leads to a loss of purchasing power. Although most bilateral trade within dollarized countries occurs with the U.S., there are still a certain number of inputs for production and extraction of raw materials, which may be required from third countries. If Latin America cannot afford the necessary imports necessary for those industries in which it possesses a comparative advantage, the export sector will suffer leading to a recession or even a depression. On the other hand, one may argue that the risk of a devaluation of the U.S. dollar is too far fetched, and the immediate gains attained from the increased purchasing power of the dollar far outweigh the risk. “The reverse effect, that imported inputs should now be cheaper, could lead to gains in the manufacturing area, even where manufactures are exported. . .” (Hira and Dean, 465). Nonetheless, gains in the manufacturing sector in Latin America may not be as beneficial as presumed because “. . .these sectors tend to be highly limited in most Latin American countries. . .” (Hira and Dean, 465). As mentioned earlier, most Latin American exports are raw materials sent to the developed world, where most of the value is added after being converted into finished products. Only after value-added activities are completed, is it that these products are exported back to Latin America. In this instance, “dollarisation may perpetuate or even exacerbate the current account deficit by spurring increases in imports at a much faster rate than exports” (Hira and Dean, 469). 

Previously, the benefits of being able to list a firm on an international stock exchange were discussed; however, the positive aspects of being able to raise equity in international capital markets are accompanied by costs borne by small-scale Latin American companies. If a firm is to list itself in New York, it will tend to forget about local equities markets in Mexico City or Bogotá. “While de-listing may improve access to international capital for the top Latin American companies, it also underscores and may increase the weakness of local equity markets. De-listing thus may weaken access to capital for local companies not able to list on US exchanges” (Hira and Dean, 476). 

In terms of monetary costs of dollarization, it is far from being free. Another expense that must be considered is that the dollarizer must purchase the U.S. dollars needed to replace the domestic currency from the U.S. Federal Reserve. Most countries hold diverse types of foreign currency that they place into interest bearing accounts, however, to initialize official dollarization, it is required that reserves be sold off in exchange for U.S. dollars. There is a tremendous cost to bear in terms of interest proceeds lost after selling previously held foreign exchange reserves. “Argentina, for example, would have to spend $15 billion initially to swap its peso currency notes for U.S. dollars. As the economy grows and needs more greenbacks, there would be a continuing price to pay” (Sachs and Larrain, 86). The loss of seigniorage is another negative aspect of dollarization. “When a small country dollarizes, the U.S. collects seigniorage equal to the difference between the amount of dollars that the country holds in the new steady state and the amount it had before the dollarization” (Lamdany and Dorlhiac, 97). Seigniorage is “the ability [of a nation] to increase its resources from minting or printing the domestic currency” (Jameson, 531. In other words, seigniorage is an inflation tax that the government exacts from its citizens by printing currency at the mint. Since it takes some time before the additional money printed at the mint passes through the economy and becomes inflationary, the government can temporarily take advantage of this revenue stream. In Argentina and Bolivia, the total amount of seigniorage collected has been close to 70% of revenue at certain times, while in other countries, it has been close to 20% of total earnings (Melvin, 552). Under a dollarization regime, however, all seigniorage revenues would go directly to the U.S. treasury, unless the United States chose to share seigniorage revenues among dollarized countries. In the words of Lamdany and Dorlhiac, the possibility of collecting seigniorage revenues “creates an incentive for the U.S. to “bribe” the small country into switching currency” (Lamdany and Dorlhiac, 97). However, the possibility that the U.S. would share seigniorage revenues “seems a particularly distant political prospect” according to Sachs and Larrian (Sachs and Larrian, 97). “Since Latin American nations have used the seigniorage from money creation as an important source of government revenue, they have a large stake in controlling [or even preventing] the dollarization process” (Melvin, 552). 

Another risk of official dollarization is the loss of ability by the Central Bank to be the lender-of-last-resort to the domestic banking system. Loss of lender-of-last- resort privileges occurs due to the abolition of the entire Central Bank, which could previously print money on-demand in case of an emergency, should the government request it. Regrettably, under an official dollarization regime, citizens will distrust domestic banks because they know there is a lack of liquidity to effectively counter a run on the banking system. The loss of faith in the ability of banks to pay depositors their money under official dollarization underscores the fragility of domestic banks and will hurt their international competitiveness in the long-term. Once the newly dollarized nation liberalizes the financial sector and foreign banks compete directly with domestic banks, the general public, and the business sector, is likely to shun domestic banks in favor of foreign banking conglomerates such as Bank of America, Chase Manhattan, and Citibank. Citizens and businesses will be aware that foreign banks are a safe haven supported by the U.S. Treasury, while domestic banks are buttressed only to the extent that they can access loans on international capital markets. 

Needless to say, what typically occurs in a situation when a country asks to borrow money to deter a run on the banking system is that its ability to access liquidity is limited because its international credit rating has already fallen, and “producing adequate collateral [to put creditors at ease] could prove difficult” (Sachs, and Larrain, 87). As is evident from U.S. Senator Connie Mack’s recent proposal titled, International Monetary and Stability Act. “. . .a Latin American dollarizer that experienced a debt crisis would be left by the Fed to stew in its own juices. . .” (Eichengreen, 15). The International Monetary and Stability Act, which is a law, intended to encourage dollarization gives the “U.S. Secretary of the Treasury the discretion to encourage official dollarization by offering to rebate quarterly to any country that dollarizes 85 percent of the resulting increase in U.S. seigniorage revenues. The law makes clear, however, that the United States would have no obligation to serve as lender of last resort to dollarized countries, to consider their economic conditions when setting monetary policy, or to supervise their banks” (Kehoe, 595). Evidently, before policymakers settle on dollarization as the best solution to their nation’s economic woes, it is recommended they consider whether they have sufficient credit available to prop up their domestic financial sector, should a crisis ensue.

Dollarization Case Studies: Panama, Ecuador, and El Salvador

Up until present, we have discussed the steps necessary to implement dollarization and the macroeconomic effects of currency substitution (both positive and negative); however, we have yet to discuss case studies of dollarized countries. For purposes of this selection, we will examine three countries, Panama, Ecuador, and El Salvador, and discuss how they have managed under a dollarized economy.
Dollarization in Panama has produced a vital transformation of the economy, because it has generated a thriving service sector and allowed the country to become fully integrated with international financial markets. Panama, as a tiny Central American country, would under normal circumstances, be ignored by foreign investors, but because of the Panama Canal and the countries strategic importance as a trade route, Panama attracts abundant foreign investment. Panama does not face any of the above-mentioned dilemmas that are normally associated with currency substitution, such as a loss of liquidity or poor export performance. Namely, this is because it has a well-established history of stability and commitment to the norms of the international financial system. In Panama, for instance, the “stability of export prices tends to preempt terms-of-trade shocks: the unified currency removes any exchange risk, transfer risk, or currency mismatch associated with devaluation. No financial or banking crises take place because of financial integration with world-connected banking. Domestic inflation or fiscal crises have not occurred because the government cannot monetize its deficits. Inflation in Panama is systematically lower than in the United States due to the Balassa-Samuelson effect, thereby providing stability to the real exchange rate” (Moreno-Villalaz, 132).

Specifically, one sector that has thrived in Panama because of dollarization is the home mortgage industry. Since there is heavy competition among the banking sector and there is a system by where home mortgage payments and other debts are automatically deducted from payroll checks, there is less credit risk for banks (Moreno-Villalaz, 131). “The bank and the borrower sign an irrevocable contract, accepted by the employer, to discount loan payments from wages, which effectively gives mortgage loans a senior debt status” (Moreno-Villalaz, 131). This enables banks to charge lower interest rates than normal, providing an end benefit to consumers. “For example, banks routinely offer 30-year mortgages at 5 to 6 percent variable interest rates, with a down-payment requirement of 0 to 2 percent. . . In addition, the government gives middle and low-income groups a mortgage interest subsidy of about 4 percentage points for 10 years” (Moreno-Villalaz, 130). In comparison to non-dollarized countries, interest rates in Panama are relatively low. Throughout Latin America, it is common to see interest rates as high as 15%, making it expensive for low-income consumers to finance even the most meager purchases, such as home appliances or computers. Dollarization in Panama, on the other hand, is an equalizer for low-income groups, because even though wages remain low in comparison to developed countries, individuals can finance their way out of underdevelopment. 

As previously mentioned, dollarization occasionally causes a decline in the export sector because switching to the dollar creates a currency appreciation that can make goods more expensive for the importing country. However, currency substitution in Panama has not had this effect. Panama’s flexible labor market does not put it in danger of having to bargain with employees to reduce wages in case of a decrease in exports. Fortunately, the country functions under a system of labor contracts. If there is a sudden drop in exports, firms can easily shed excess production capacity and adjust to current demand conditions. Moreover, Panama is not as dependent on raw material exports as other Central American countries. Instead, Panama is a leader in the export of its service sector industries such as banking and insurance. All this is possible because of dollarization and the 100-year head start Panama has had in integrating with the world economy. In an extensive study performed by Kurt Schuler on approximately 100 countries who have used the U.S. dollar at one time or another, it is concluded that those that have switched between dollarization and fixed and floating rate regimes are worse off than if they had remained dollarized (Schuler, 124). Take the example of Bolivia, which dollarized in the early 1980s and then switched back to using a domestic currency. After the switch, Bolivia experienced an acute period of hyperinflation. The ensuing currency devaluation caused Bolivia to experience a foreign debt crisis. “Panama [on the other hand] has a long-term record of economic stability unusual for a country at its income level” (Schuler, 125).

As opposed to Panama, dollarization in Ecuador was implemented in a desperate move to halt the macroeconomic decay that gripped the country from 1998 to 2001. The devaluation of Ecuador’s currency, the Sucre, was a direct result of lax banking regulations that permitted lenders to make a series of bad loans throughout the preceding period. When Ecuador’s economy slowed down in the late 1990s and interest rates began to rise, Ecuador’s top banks, such as Banco del Pacifico and Banco del Progreso saw themselves in a bind and began to ask for assistance from the government to bail them out. In order to maintain the value of the Sucre and to prop up domestic banks, the government began to sell its foreign exchange reserves. “Meanwhile, exchange-rate depreciation led to further inflation. By the end of 1998, the sucre had depreciated by 30%. As a result, there was a growing quantity of dollars circulating as the sucre continued to lose its value relative to the dollar” (Berrios, 57). Eventually, Ecuador’s banks were put on lock down after citizens attempted to withdraw their domestic currency in order to exchange it for dollars. Instead of remedying the situation, freezing bank accounts exacerbated the devaluation of the Sucre. In the meantime, owners of banks and government officials were able to exchange their personal Sucre-denominated assets for U.S. dollar-denominated assets at a reasonable rate, but the majority of the population was left to watch powerlessly, as their personal savings transformed into a mere pittance. Once the decision to implement official dollarization was made, citizens were allowed convert their Sucre’s to U.S. dollars, however, it was too late for people to recover even a semblance of their previous savings. Ecuador’s banks were already insolvent, and the Sucre had fallen dramatically from January 2000 to 2001, reaching levels close to 26,000 to 1 versus the U.S. dollar. “Between 1998 and 2000, Ecuador was facing the highest inflation rate in Latin America. Consumer prices reached 60.7% in 1999 and 96.6% in 2000, respectively” (Berrios, 58). The out-migration of Ecuadorian citizens has been substantial, with 1 in every 10 Ecuadorians leaving the country. Among Ecuadorian cities, the third largest in terms of population, after Quito and Guayaquil, is New York City. The example of Ecuador’s dollarization experience should be a lesson to policymakers not to implement dollarization under conditions of severe macroeconomic instability. However, it would not be fair to blame currency substitution as the culprit of Ecuador’s current economic woes. The economic conditions under which official dollarization was initially implemented were much worse than present. 

Dollarization has recently brought macroeconomic stability to Ecuador by putting downward pressure on inflation and interest rates and by changing the manner in which “supervisory and regulatory institutions manage liquidity and solvency risks” (Quispe-Agnoli and Whisler, 58). Dollarization brings the hope that banks improve their risk management capacity through their awareness that the central government can no longer bail them out in event of a crisis. 

Economic output in Ecuador has recently improved, due to high oil prices on international markets, and under dollarization investor confidence in the domestic market has brought a continued inflow of foreign direct investment. Furthermore, dollarization has integrated the Ecuadorian economy with that of the United States, and remittances sent by Ecuadorians living in the abroad have come to be a dominant source of revenue for those in the home country. Some concerns for Ecuador to consider for the future are “how will Ecuador’s economy cope as the Federal Reserve increases interest rates? Interest rate hikes would discourage borrowing and, therefore, investment. Another issue Ecuador is now forced to deal with is the rapid weakening of the U.S. dollar relative to other major currencies. While it might help boost the country’s few exports, the main disadvantage is more expensive imported inputs the country needs” (Berrios, 63). The costs of imports from Spain and Colombia, Ecuador’s third country trading partners, are likely to become too expensive if the U.S. dollar continues losing ground. For now, Ecuador appears to be on track to further integration with the U.S. economy, now that the possibility of a free trade agreement is within reach. Yet, Ecuador’s political situation remains tumultuous regardless of dollarization. Sometime in the near future, Ecuador will be forced to choose sides between the United States, and countries such as Venezuela, Nicaragua, and Bolivia, who are now under Socialist influence. Recently, dollarization has become a source of discontent among Indigenous groups, who see it as a continuance of neo-liberal economic policies imposed by the IMF and World Bank. There have been numerous strikes and riots throughout the country, as well a sit-in’s at oil production facilities. Earlier this year, the central government deployed military personnel to stand guard over oil production facilities, after a three-day oil stoppage that cost the country millions of dollars. Events like these should encourage governments to be more deliberate before deciding to dollarize, because if the political backlash to currency substitution offsets the benefits, it might not be a worthwhile policy. For now, Ecuador must wait and see the results of the coming election to know if it will choose to embrace or reject the path to further economic integration with the United States. However, despite currency substitution, Ecuador’s leaders must remain committed to deeper economic reforms because “. . . dollarization has not been the solution to institutional flaws that led to the crisis in the first place” (Berrios, 66).

Contrary to the dollarization process in Ecuador, the dollarization in El Salvador has been a well-planned unilateral decision by the ARENA party to institutionalize liberalization and structural adjustment policies recommended by international financial institutions. Among scholars of Salvadorian economics, the consensus is that El Salvador was on the right track economically before dollarization; however, dollarization was a compliment to other reforms, which were intended to benefit the financial sector. In this sense, dollarization has not only been an economic decision but a political decision as well. Within El Salvador, there has been a split among the ARENA party between those representing old agricultural wealth and those representing financial wealth. Members of the financial sector generally support closer integration with the world economy. Francisco Flores, as the head of the ARENA party during dollarization, represented the financial sector; therefore, many speculate official dollarization was part a plan to make it difficult for another party to undo financial reforms made under the Flores government. (Towers and Borzutzky, 34). In El Salvador, this is certainly a real possibility, because after the Civil War in the 1980s, many of the congressional seats went to the radical leftist Faribundo Marti National Liberation party. In essence, dollarization has been a means to preserving the status quo and preventing a return to protectionist policies and chaos of the 1980s.

Taking into account that dollarization in El Salvador was not strictly an economic decision, was dollarization overall beneficial to the Salvadorian economy? “The [initial] costs of transition to dollarization include adapting bank accounts, cash registers, and accounting systems to the new currency. More important, the dollarizing country incurs a stock cost, or the cost of purchasing the first set of bills and coins needed for circulation. El Salvador’s stock cost was approximately 2.1 percent of GNP, or $330 million removed from the net international reserves” (Towers, and Borzutzky, 42). After dollarization, the stock cost should have been somewhat recovered because there was a “decline in interest rates, from 13.9% in 2000 to 9.6% in 2001. Lower interest payments directly transferred to savings on foreign debt obligations, but unfortunately, lower interest payments did not have a significant effect on the majority of the Salvadorian population who do not have access to formal credit lines (Towers and Borzutzky, 39). “. . .Because formal loans are not available to the majority of the population: their credit sources typically are NGOs or loan sharks in the informal market. Lower-income groups will benefit only if the low interest rates generate added investment which in turn will generate job creation and rising incomes. . .” (Towers and Borzutzky, 39). In Towers and Borzutzky’s study on the macroeconomic benefits of dollarization in El Salvador, findings show that foreign investment increased slightly after dollarization, but there is no way to prove causality, because FDI was increasing prior to dollarization as well (Towers and Borzutzky, 38). After dollarization, one would expect to see an increase in economic growth; however, El Salvador experienced a massive earthquake in 2001, which makes it impossible to determine whether currency substitution helped or hurt the economy (Towers and Borzutzky, 38).

The socioeconomic impact of dollarization in El Salvador has been negative for the majority of the rural poor because of a phenomenon known as rounding-up. When the Colon was still in circulation throughout the country, the cost of certain items may have been less than one dollar, however, “because the exchange rate was 8.75 colones to one dollar, a round number in colones does not translate into a round number in dollars” (Towers and Borzutzky, 48). Small shop owners, in order to simplify, began rounding up their prices, yet unfortunately, this had had a significant impact on the income of Salvadorians, where “the Gini coefficient is 52.3, the fifth highest in the world,” and more than 50% of the population lives in extreme poverty (Towers and Borzutzky, 32). Among some Salvadorians, there was a general tendency to reject U.S. dollars as a new currency source, consequently, in certain rural areas; the Colon remains in circulation. While in general, inflation declined throughout the country, it is important to note that inflation actually worsened for some groups. Aggregately, dollarization has had a beneficial impact for the Salvadorian economy, but for specific sectors of society, dollarization has caused increased hardship and resentment. Many in El Salvador, as in Ecuador, feel the political system is unresponsive to their needs and that dollarization was a decision undertaken without their input and consent. “As is the case with macroeconomic and trade liberalization, dollarisation’s benefits are not perceived to reach the poorest groups in society” (Hira and Dean, 476). To ensure legitimization and acceptance of government sponsored monetary policies, those in leadership positions may have to temporarily assist those suffering negative impacts.

Minimizing the Socioeconomic Impact of Currency Substitution

To minimize the psychological impact of dollarization, governments must assure citizens that using another country’s currency is not in any way an infringement upon the sovereignty of the nation. Circulating a currency that has the faces of national heroes who are not ones own can be difficult; especially when there is the perception that dollarization was not a choice but an imposition. One possibility for policymakers is to work out an arrangement with the U.S. Treasury, by where they can participate in the design of currency that will circulate within their country. This would allow the economy to retain the benefits of using a stable currency, while preserving a sense of national sovereignty for citizens. Since dollarization is normally followed by increased foreign investment, markets based on the export of agricultural commodities will have to cope with the transition to a more industrial or service-based economy. Another possibility for policymakers, to prevent the disproportionate socioeconomic impact of dollarization on any one group, is to focus foreign direct investment on regions that had previously depended on agricultural exports. Managing FDI in underdeveloped countries can be done by creating industrial parks in rural areas that are export free processing zones. Specifically, there should be no export or import tariffs on goods leaving or entering the special economic zone, as to encourage increased investment revenues. Groups such as the rural poor that previously worked in agriculture but are currently unemployed, can also be given government sponsored training and education to ensure a smooth transition to a modern work environment. Educational programs could also be used in conjunction with micro-lending programs and counseling for the responsible use of credit. This would spawn the growth of small businesses in rural areas that could provide employment.
Due to the asymmetrical relationship existing between dollarized countries and the United States, political opposition to dollarization is likely to remain. To smooth the transition in Latin America from underdevelopment to development, the U.S. must remain committed politically to Latin American countries. If currency substitution is not accompanied by some sort of political arrangement, the possibility for economic and monetary disintegration remains. In order to ensure the future stability of those countries in Latin America that are reform-oriented, the U.S. must also be willing to sacrifice some of its economic sovereignty, to secure Latin America’s cooperation and commitment to the dollar bloc in the 21st century.

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