In addition, a dollarizing government will have to accept losing the seigniorage revenue that domestic currency creation produces. In this context, it is worth noting that President Menem of Argentina has discussed the possibility of fully dollarizing the Argentine economy, and Argentine financial officials have had informal discussions of issues relating to dollarization with Treasury and Federal Reserve officials. Those who favor this step in Argentina believe, among other things, that under their currency board system, they have already borne most of the costs of dollarization, but they are not yet enjoying dollarization's full benefits. In their view, dollarization, in addition to the other potential benefits, would result in substantially lower and less volatile interest rates. Once again, for Argentina as for any other nation, the decision to adopt another country's currency is an enormously consequential one that would need to be considered in a careful and extended manner.
Countries can obviously choose to adopt the dollar as legal tender without our assent.
However, such a decision has some consequences for the United States, and we hope and expect that countries would consult with us in advance. Let me turn now to the potential implications of broader dollarization for the United States, which I know to be of great interest to members of this Committee and others in Congress. Possible Considerations for the United States Speaking as an analyst, the question of the impact of dollarization by other economies on the United States economy raises a number of considerations. Of potentially greater importance would be the increase in economic links that might be associated with the creation of a broader dollar area. The fact of sharing the same currency would reduce the cost of doing business with the dollarizing country and reduce uncertainty about future exchange rate changes.